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As the specter of a slowdown in China’s economic growth looms, the debate about just how far Beijing is willing to go in its deleveraging campaign rages on.

A new report from the government-backed Center for National Balance Sheet sheds light on the progress being made in the crackdown on excess debt amid the accumulating economic headwinds.

Government efforts to curb excess leverage in the financial sector have been effective in nominal terms when it comes to private firms, with total liabilities among private industrial companies falling by 0.3% in the first half of this year, according to the data, as reported by Caixin.

But a “deteriorating financing environment and the squeeze by state-owned enterprises,” has led to a passive leverage building process, with the debt-to-asset ratio of the same firms jumping to its highest point since 2014 amid a 7.8% drop in total assets.

SOEs, meanwhile, saw their debt ratio fall marginally, down 0.7%, despite total liabilities increasing by 11.4%. SOE total assets shot up by 12.8% over the same period.

Private firms have taken the biggest hit under the shadow-banking crackdown, with important financing sources cut off for firms that have limited access to bank loans.

The report warned: “the efficiency of SOEs’ investments has not seen any fundamental improvement. […] As the prices of industrial products fall back, their profit margins are likely to narrow, casting a pall over the prospects for debt reduction.”

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