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Deleveraging pauses China stock rally but refreshes economy

Chinese equities lagged gains in Western markets during the past four weeks as Beijing’s regulators pressed companies to reduce debt. Property developers, the most levered sector, performed worst in Hong Kong after several members of the Hang Seng China Enterprises Index announced secondary offerings. Secondary issues dilute the stake of existing shareholders.

Deleveraging has become the meme of the day in China market commentary. Asia Times noted the trend last week (“China Deleverages While the Sun Shines,” Dec. 3), and Bloomberg News weighed in on the theme yesterday (“China’s Financial Markets are Starting to Price in De-Leveraging,” Dec. 8). A flood of equity issuance, including both initial public offerings and secondary issues, has lowered China’s overall leverage ratio since 2015. American companies meanwhile have taken on more debt and bought back their existing shares, increasing their leverage.