NIFD balance sheet shows that debt repayment risks are under control

China's total social assets maintained double-digit growth during the last 10 years, while the overall debt expansion remained constrained since 2017, suggesting a healthier national balance sheet, experts said on Friday.

Total social assets, a measure of the country's wealth, increased to 1,655.6 trillion yuan ($255.95 trillion) by 2019, up from nearly 1,400 trillion yuan in 2017, according to the national balance sheet published by the National Institution for Finance and Development, a Beijing-based financial think tank under the Chinese Academy of Social Sciences.

The country's GDP, which is different from the total social assets, however, indicated a change in gross production during a certain period. China's GDP stood at 98.65 trillion yuan by 2019 and increased to 101.60 trillion yuan last year, according to the National Bureau of Statistics.

The country's total social debt, which is on the other side of the national balance sheet, reached 980.1 trillion yuan in 2019, meaning a net social wealth of 675.5 trillion yuan, the NIFD said on Friday.

Between 2000 and 2019, China's net social wealth rose by an average rate of 16.2 percent every year, faster than the 12.8 percent nominal average GDP growth.

Zhang Xiaojing, head of the Institute of Finance and Banking of the Chinese Academy of Social Sciences, said the high household savings rate and growth in asset prices, such as land, stock and property, have helped grow the wealth.

The measure of national wealth, indicated by the comprehensive balance sheet in terms of total assets and liabilities, can reflect a broader picture of a country's economic performance other than the GDP.

It can also indicate the debt level and potential risks, providing valuable information for policymakers to adjust the macroeconomic and financial steps for supporting high-quality economic development, said Zhang.

China's campaign to stabilize the leverage levels, or the overall debt-to-GDP ratio, has eased financial risks and left more room to contain the negative effects of the novel coronavirus epidemic, said Li Yang, chairman of the NIFD.

According to the balance sheet, China has accumulated a large amount of valuable assets in the past decade and together with the profit it gained, the total assets have exceeded the debt level, which means there are no debt repayment risks, said Li.

NIFD data showed that in 2019, the leverage ratio of China's financial sector retreated to the level of 2013, after peaking at the end of 2016. One result of the deleveraging campaign has been the control achieved in the off-balance sheet activities of commercial banks, with shadow banking seeing a steep decline from the peak of about 100.4 trillion yuan to 84.8 trillion yuan by the end of 2019.

Due to the COVID-19 pandemic, the country's macro leverage ratio rose fast and reached 270.1 percent at the end of last year, which is very close to the global leverage ratio of 273.1 percent, but 61.7 percentage points higher than the leverage ratio of emerging economies, said the NIFD report, adding that measures are still needed to continually tackle financial risks.

A sustainable model of balancing the debt and wealth growth, according to the report, should focus on better regulating the financing activities of local governments and State-owned enterprises.

One way to do this is to swap the implicit local government debt by issuing new bonds. The "implicit debt" is mainly formed through financing activities of the State-owned enterprises and guaranteed by the local governments. Other actions include taking good advantage of the government savings, which accounted for nearly 34.4 percent of the GDP in 2019, and disposing of some of the local government assets.