China’s Debt-Driven Growth Model Faces Stagnation Risks as Leverage Ratios Surge

China is facing a potential period of economic stagnation as its growth model becomes increasingly dependent on government debt to offset structural challenges. The nation's non-financial sector debt climbed to approximately 285% of GDP in 2023, a significant leap from 120% recorded in 2000. Projections from the Chinese Academy of Social Sciences suggest the macro leverage ratio could exceed 302% by 2025, highlighting intensifying fiscal pressures. Despite aggressive interest rate cuts and financial easing measures, private credit demand remains unresponsive, signaling a disconnect between policy and the real economy. The structural shift to maintain a 5% GDP growth target now requires significantly higher debt levels for diminishing marginal returns in growth. These developments pose a bearish outlook for the Yuan and Chinese equities, while also weighing on commodity-linked currencies like the Australian Dollar.