Macro-Finance Salon (No. 52): Deleveraging Experience in the World's Major Developed Countries

On March 17, Macro-Finance Salon (No. 52), was held in Room 605, Cultural Square of Renmin University. Particularly, this salon invited Luo Yu, researcher fellow of IMI, assistant professor of school of finance at RUC to be the guest speaker. He delivered a keynote speech on "Research on Deleveraging Experience in Major Developed Countries". This salon was presided over by Qu Qiang, the assistant director of IMI. Luo Yu introduced the meaning of leverage, commonly-used indicators and calculation methods. Then he analyzed the role of monitoring leverage rate in reducing the macroeconomic and financial risks. He argued that a pretty high leverage would hinder the economy and deleveraging in a reasonable and orderly way was the key for the economy to be powered up again. However there might be advantages and disadvantages in deleveraging, which was the government's choice for optimization. And then Luo Yu took the U.S., Europe and Japan as examples to analyze the measures and effectiveness of various departments of major developed countries through the debt balance/GDP and other indicators. He pointed out that deleveraging in the U.S. could be divided into four stages. The process was essentially a shift of debt from the private sector to the public sector as well as a shift of high leverage risk from private sector to federal government. Thanks to the in-time and profound government interruption, U.S. had taken the advantage of a more complete market mechanism as well as the international status of U.S. Dollar and thus promoted the real economy, so that the deleveraging result in US was satisfying in general. In contrast, the private sectors and government departments in the euro zone countries had not been able to effectively deleverage due to factors such as the high-welfare and low-growth economic model, institutional deficiencies in fiscal and monetary policy, and lacking of exit mechanism. The debt crisis triggered by the financial crisis was still an important obstacle for recovery in Europe. In this regard, Luo Yu took the examples of Spain, Britain, Ireland, Italy and other countries for analysis. In his view, he thought that Japan was an opposite example of deleveraging in comparison. "Abe's economics" had a limited effect on deleveraging. Next, Luo Yu introduced and evaluated the calculating method of economic leveraging in China's various sectors. He pointed out that the problem in China's leverage was somewhat different. In China, non-financial enterprises, especially those industries with high energy consumption, high pollution and overcapacity, had a higher leverage rate. Finally, Luo Yu shared the international experience in deleveraging from these aspects such as the determination of a reasonable leverage level, the relationship between cutting overcapacity and deleveraging in corporate sectors, the endurance capacity of financial sectors in deleveraging, the bottom line of financial rescue in the process of deleveraging, the space of adding leveraging in the residents sector. Zhang Yu, a macroeconomics researcher at Minsheng Securities Research Institute, made comments centering several clear trends of the current macro level. She pointed out that the trend was very obvious in the new round of U.S. government adding leverage, the short-term boost of American economy, the deleveraging of Chinese financial sectors and the space of adding leverage for residents sector, but the amplitude of fluctuation was still uncertain. The condition of domestic and foreign deleveraging was very different in derivatives, financial supervision, non-performing assets, bankruptcy, etc, so China needed to create a better deleveraging environment. Zhang Yu also raised some problems worth thinking about, such as the ceiling of U.S. public debt, the balance between cutting capacity and unemployment tolerance and the standard of evaluating zombie enterprises. In the Q&A session, the audience raised some questions, such as the profit source of the financing circulation chain and the interbank certificate circulation chain, the relationship between the liabilities and the leverage ratio of the financial institutions, the applicability of the leverage transfer strategy in China, the influence of the shadow bank on M2, etc.

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