A Positive Study on the Correlations between Debt Ratio of Chinese Enterprises and Economic Growth and Inflation

Abstract

The present study shows that the debt-to-asset ratio of China's state-owned enterprises and of China's industrial enterprises basically hold constant in recent years after reaching a peak in 1995. The correlation between the debt ratio of China's state-owned enterprises and GDP growth rate is small, yet the correlation between the debt ratio of China's state-owned enterprises and inflation rate is greater. Meanwhile, the correlations between the debt ratio of China's industrial enterprises and GDP growth rate and inflation rate are all small. Therefore, a credit policy should basically maintain debt ratio at a stable and reasonable level. To curb inflation, the credit policy should focus on compressing the debt ratio of state-owned enterprises; to stimulate economy, the expansionary credit policy should still hold a stable level of debt ratio for enterprises.