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| Ponzi Financing, Deleveraging and Macroprudential Policy |
| MA Yong, ZHANG Hongming
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| School of Finance/China Financial Policy Research Center, Renmin University of China, School of Finance, Renmin University of China |
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Abstract The global macroeconomic leverage ratios have witnessed a sustained upward trend in recent years, drawing renewed international attention to high debt levels and financial instability. According to BIS statistics, from March 2009 to December 2023, the non-financial corporate leverage ratio across G20 nations increased from 79.0% to 91.7%, while China's ratio surged more markedly from 99.4% to 134.7% during the same period. Particularly noteworthy is that China's non-financial corporate leverage ratio once approached 150% around 2015. As China's economy transitions into the “New Normal”, shifting development focus from rapid growth to quality enhancement has become imperative for sustaining healthy economic development. However, persistent corporate debt accumulation and financial system instability have significantly hindered this economic transformation. This context raises a crucial practical question: how to achieve effective deleveraging with minimal economic disruption while ensuring domestic financial stability, thereby establishing a robust foundation for industrial restructuring and upgrading. This is an urgent policy challenge demanding thorough exploration and innovative solutions.
Particularly under the current conditions where China's economy is facing “Triple Pressure” and “Three Periods Overlapping”, the profitability of the corporate sector is under stress. This has led some enterprises to increasingly rely on debt to maintain their cash flow balance and business operations, thus exhibiting the characteristics of firm type transformation revealed in Minsky's theory. Discussing the endogenous combination of deleveraging policies and macro policies based on Minsky's theory is also a significant theoretical issue that requires ongoing and in-depth study. In light of this, this paper constructs a DSGE model with “Ponzi Financing”, introducing heterogeneous entrepreneurial sectors with different financing characteristics and a financial sector with a “dual structure”. This model is used to systematically analyze the stabilizing effects under the application of deleveraging policies, macro-prudential policies, and their combined use.
The analysis results of this paper indicate that: (1) Structural deleveraging policies can play a good stabilizing role, but in the process of reducing the financing expansion capabilities of Ponzi enterprises, they need to be combined with appropriate macroprudential policies to achieve overall stability of the economy and financial system. (2) With the support of macroprudential policies, there is a relatively optimal implementation scheme for structural deleveraging policies, which involves first reducing the debt ratio of Ponzi enterprises to a reasonable level, then controlling their financing expansion capabilities, and finally promoting a return to the real economy. (3) The policy authority has different policy spaces at different stages of deleveraging: During the leverage reduction stage, policy adjustments need to be carefully balanced to avoid causing significant economic fluctuations; In the leverage control stage, the use of macro-prudential policies can be more flexible, and the policy space correspondingly increases; In the stage of shifting from “financial to real”, the policy space will be fully released, and the flexibility of policy implementation will be greatly enhanced.
The policy implications of the conclusions of this paper are: Although the main sources of economic and financial instability are the excessive indebtedness and investment by entrepreneurs and bankers chasing profits, and a reduction in investment is a crucial trigger for the “Minsky Moment”, this does not imply that loosening financing constraints can avoid potential economic and financial risks. On the contrary, arbitrarily easing financing constraints may lead to significant resource misallocation, thereby exacerbating the vulnerability of the economic and financial system. Therefore, loosening financing constraints is not a viable solution to the “Minsky Moment”. Theoretically, if we view the “Minsky Moment” as a deleveraging process accompanied by significant negative impacts, then policymakers should adopt differentiated strategies for high-debt entities, aiming to complete the deleveraging process with minimal negative impact. From the perspective of Minsky's theory, deleveraging should include at least two aspects: reducing the debt level of Ponzi financing enterprises and controlling their financing expansion capability. If policies can separately regulate the debt level and financing expansion capability of micro-agents, rather than simply prohibiting or reducing lending outright, the relevant market entities may be able to choose a more reasonable path to complete the deleveraging process at a relatively lower cost.
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Received: 20 July 2022
Published: 01 February 2025
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