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Despite the government’s concerns about rising debt levels, Chinese consumers continue to pump their money into property. Photo: Reuters

China to survey 30,000 households about debt levels as financial risks continue to rise

  • Study will provide government with a clearer picture of people’s repayment capabilities and could influence future macroeconomic policy decisions, lender says
  • Ratio of household debt to gross domestic product rose by 2.1 percentage points in first six months to 55.3 per cent, think tank says

China is preparing to carry out a broad survey of households to identify the financial risks they face and find ways to boost consumption and support the economy as a punishing trade war with the United States heads towards its 15th month.

The study by the People’s Bank of China (PBOC) will begin in mid-October and involve about 30,000 urban households across the country, according to regional government notices and a promotional video produced by the central bank.

With a primary focus on debt, the research will seek to determine to what extent households are exposed to downdrafts in the property sector and how that could undermine financial stability on a national level.

Interviews will be conducted at bank branches and participants will be questioned about their income, spending, financial assets, mortgage loans and other forms of debt, the bank said.

The information collected will provide the government with a clearer picture of household debt levels and people’s repayment capabilities, which could in turn influence future macroeconomic policy decisions, it said.
The study is Beijing’s latest attempt to better understand the problems facing China’s middle classes, on whom it is counting to prop up a slowing economy.

Growth dipped to a 27-year low of 6.2 per cent in the second quarter, and the trade war with the US continues to put downward pressure on the economy. The next round of high-level negotiations aimed at finding a resolution to the dispute is set to take place in Washington in the coming weeks.

The PBOC’s study comes amid growing concern over the problems of bad debt in China. Yet unlike the high profile given to the risks facing small banks – a situation brought into sharp focus after the government was forced to take control of Baoshang Bank in May when it became the first Chinese bank to fail in 20 years – household debt has been far less discussed.
This might have something to do with the fact that as a proportion of gross domestic product it is much less significant in China than it is in countries like the United States, Britain and Japan.

However, Liu Lei, a researcher at the National Institution for Finance and Development – a Beijing think tank affiliated to the Chinese Academy of Social Sciences – said that while the rise of household debt did not pose an immediate threat, it did merit serious consideration because as a percentage of gross domestic product it had almost tripled over the past decade.

China’s household debt to GDP rose by 2.1 percentage points in the first six months of the year to 55.3 per cent, despite regulators cracking down on online peer-to-peer lending and stricter controls on mortgage lending, the institution said.

“The biggest concern is property assets,” Liu said. “The risk from mortgage loans deserves special attention as property prices continue to face downward pressure.”

Rising household debt levels have also had a significant effect on consumption, whose role as an economic driver has risen as exports and investment growth have both slumped.

Chinese consumers are suffering from sharply rising house prices … Many tend to put the government’s tax giveaways towards buying real estate and not into the consumption of other goods

In a research report released this week, Commerzbank said that the indebtedness created by the rush to buy property – coupled with precautionary saving for retirement and uncertainty about jobs and income created by the trade war – had clearly dampened consumer spending.

“Chinese consumers are suffering from sharply rising house prices … Many tend to put the government’s tax giveaways towards buying real estate and not into the consumption of other goods,” it said.

According to a survey published earlier this year by Southwestern University of Finance and Economics in Chengdu, which tracked the wealth and debts of about 10,000 Chinese families for almost a decade, property accounted for 78 per cent of urban household assets in 2017.

And consumers continue to sink their money into housing. At the end of June 2019, outstanding mortgage loans stood at 28 trillion yuan (US$3.92 trillion) – 17.3 per cent higher than a year earlier and equivalent to 54 per cent of all outstanding household loans, according to figures from the China Banking and Insurance Regulatory Commission.

This article appeared in the South China Morning Post print edition as: Beijing to survey 30,000 households on debt levels