China’s rising household debt a ‘major concern’ as government tries to boost consumption amid trade war
- Household debt in China hit 60.4 per cent of its gross domestic product at the end of 2018, according to the People’s Bank of China (PBOC)
- The rapid growth of household debt has raised concerns among policymakers and analysts at the same time the government tries to boost consumption
A household debt crisis may be brewing in China as the government tries to boost sluggish consumption amid a domestic economic slowdown and trade war with the United States.
And for the first time, the household debt to income ratio hit 99.9 per cent, meaning that total debt is now roughly equal to total household income among the average Chinese household.
“[Household debt growth] is a major concern for the central bank,” said Xia Le, chief economist for Asia at Spanish banking group BBVA. “Looking at the rate of growth of household debt or leverage, in just over two or three years, it’s already grown to a level where you can’t say it’s particularly safe or low. It may be becoming a financial risk.”
Looking at the rate of growth of household debt or leverage, in just over two or three years, it’s already grown to a level where you can’t say it’s particularly safe or low. It may be becoming a financial risk
China’s central bank has warned against rapid growth of household debt, particularly in the form of mortgage and consumer loans. At the end of 2018, the housing loan to income ratio hit 47.7 per cent, up 3.7 per cent from 2017, according to the PBOC.
Besides housing loans, consumer lending has also skyrocketed. Fitch Ratings estimated that the outstanding balance of credit card receivables reached 7.23 trillion yuan (US$1 trillion) by the first half of this year, after a nearly 30 per cent compound annual growth rate over the past five years.
Signs that people are struggling to repay their credit card debt are also showing. Late payments on credit cards have been rising this year, while there was also an increase in the number of credit card loans that had soured at some banks during the first half of 2019, according to Fitch.