The Chinese authorities had earlier moved to contain the growth in leverage, particularly where it was funded using so called ‘shadow financing’ channels. While proceeding broadly as intended, this earlier tightening in financial conditions has contributed to the slowing in Chinese economic activity. And yet leverage remains high and there is still much to do to ensure the soundness of the Chinese financial system.
But there is still a long way to go before the damage to the economy caused by the pandemic is offset. The number of people in job retention schemes has been declining but remains high. Overall, there are still 3.3 million fewer people employed than before the pandemic, especially among the younger and lower skilled.