Trade war and the coronavirus will bring China’s quietly raging consumer debt crisis to a head

Online lenders and other more traditional nonbank players are sinking further into trouble as a weakening Chinese economy takes its toll

Given China’s weak legal infrastructure and the government’s populist bent, expect the fallout to hurt banks and destroy many nonbank financial institutions

Reading Time:4 minutes

Shoppers in a mall in Shenyang, in northeast China's Liaoning province, on March 22. Chinese consumers are facing a real stress test in 2020. Photo: Xinhua

Published: 1:00am, 25 Mar 2020Updated: 1:51am, 25 Mar 2020

It is a cliché that Chinese consumers are frugal and that they maintain a high savings ratio because of a lack of a social safety net. While that may still be true, it is becoming less so each year. Indeed, Chinese consumers are facing a real stress test in the wake of a sluggish economy, a trade war with the US and the coronavirus pandemic.

As recently as the 1980s, consumer credit was unheard of in China. But it has surged to make up 36 per cent of total assets of a banking sector that has grown over 100-fold. Today, millions of consumers are choking on debt. But do not hold your breath for an official announcement of a debt crisis, even though we are clearly deep in one.

At YX Asset Recovery, we are inundated with requests from lenders to take on more assignments from them. Our rivals such as Asset 360 and China Data Group are in the same boat.

And a leading online lender, Qudian, which is listed on the New York Stock Exchange, just reported an 88 per cent sequential drop in its fourth-quarter earnings after citing rising rates of delinquency. It looks certain that the lender will plunge into big losses in the first half of this year.

Five other online lenders I spoke with in recent weeks have reported extreme difficulties in debt recovery. In addition, traditional nonbank lenders are only fairing marginally better.

People in Beijing spend time at a cafe in July 2017. As recently as the 1980s, consumer credit was unheard of in China. But it has surged to make up 36 per cent of banking assets. Photo: AP

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x