Abstract: As the debt/high leverage problem has not yet been completely resolved, China's economy is still facing a situation of structural imbalance and slowing growth rate. The dual pressures of debt and economic growth demand further in-depth study of the theoretical relationship between the two. The analysis of the dynamic general equilibrium model shows that debt optimizes the allocation of resources among participants with different production efficiencies, promotes capital accumulation and output, and social welfare is thus improved. Under the condition of mandatory repayment, the production equilibrium condition determines the upper limit of debt, but under the condition of non-mandatory repayment, the "not too tight" debt ceiling and the production equilibrium condition jointly determine the debt limit. Numerical simulations show that the debt-to-capital ratio and the capital stock present a robust positive U-shaped relationship. At present, China's nonfinancial corporate debt-to-capital ratio is about 35%, which is higher than the optimal level, so policymakers should insist on deleveraging. But the problem of resource misallocation needs to be paid attention to.

Key words: nonfinancial corporate debt, the search theory, credit constraint, leverage rate