China’s household debt has grown so much that trade war stimulus is largely ineffective, study shows

Chinese consumer debt-to-income ratio rose to 92 per cent at the end of last year, up from only 30 per cent in 2008, according to the Institute of International Finance

The ratio is higher than the 86 per cent in Germany and close to the levels of 97 per cent in the United States and 100 per cent in Japan

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Customers check the 4K smart TVs and Internet TVs at a home appliances store in Changzhou city, east China's Jiangsu province. Photo: VCG

Published: 8:15pm, 7 Aug 2019Updated: 10:09pm, 7 Aug 2019

China’s household debt has risen to a such a high level that government stimulus designed to boost consumer spending would likely be ineffective, an international research group said.

The country’s household debt-to-income ratio rose to 92 per cent at the end of last year, a sharp increase from only 30 per cent in 2008, the Washington-based Institute of International Finance (IIF) wrote in a research note.

The ratio is higher than the 86 per cent in Germany and close to the levels of 97 per cent in the United States and 100 per cent in Japan.

“The already high amount of household debt – especially relative to income – means mortgages and consumer credit can no longer be used as economic stimuli to combat trade headwinds,” IIF analysts Gene Ma and Phoebe Feng wrote.

The debt level of Chinese consumers is high relative to household disposable income because Chinese households earn only 62 per cent of the total national income. In addition, “the burden of debt repayments is much higher for the young, urban, and low-income families”, they said.

The IIF research echoes statistics from the Bank for International Settlements, which showed that national household debt had increased by a factor of eight since 2007, to 52.6 per cent of gross domestic product last year.

The data send a fresh cautionary signal to Beijing about the ability of Chinese consumer spending to boost overall economic growth. The Politburo, China’s top decision-making body headed by President Xi Jinping, vowed to build a powerful domestic market to offset the economic losses triggered by the trade war with the United States, following its meeting on July 31.