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Frank Tang

China’s urban households were already weighed down by debt before the Covid-19 outbreak, according to a study by the central bank that sounded new alarms about the financial risk the country is facing.
The survey, published by the People’s Bank of China, looked at 30,000 households nationwide last October. It was the first national survey gauging the scale of household debt released to the public by the central bank in recent years.
About 56.5 per cent of the surveyed families reported debts, but the survey said that middle-class wage earners, young mortgage holders and small business owners faced the greatest risks.
The survey results were released on Friday by China Finance, a magazine affiliated to the central bank.
Coronavirus: economy in China’s Covid-19 epicentre Hubei shrank 40 per cent in first quarter of 2020
Property contributed to 59.1 per cent of household assets, a higher proportion than in the United States, but also accounted for three quarters of liabilities with the average family having a mortgage of 389,000 yuan.
The quality of the assets held was another worry.
Only 20.4 per cent of the assets these households held were financial assets, which means it is difficult for them to turn them into liquid assets in times of emergency.
The average debt ratio, even when excluding property and other real assets, was 44.6 per cent, and more than half of families with debt saw the ratio surpassing 100 per cent.
“Although the household debt ratio [of 9.1 per cent] is stable overall, the assets have poor liquidity and have certain liquidity risks,” the central bank warned.


The debt ratio for low-income families was worse. About 792 households, or 2.5 per cent of the sample, had less than 100,000 yuan of assets, but their debt ratio of 30.7 per cent was far higher than the national average of 9.1 per cent.
About 0.4 per cent of the surveyed were under severe financial stress as their assets were not enough to pay their debts.
“A majority of those families have no property or car, but a small amount of deposits. They were mainly self-employed and accordingly have no stable source of income. Once encountering accidental events, repayment default risk will be high,” the survey said.
Coronavirus: China’s economy shrank for the first time since 1976 in first quarter
To weather the shock from Covid-19, the Chinese authorities have ordered financial institutions to provisionally defer their principal loan repayments.
Financial regulators also stepped up credit support for small and private businesses, with a 1.8 trillion yuan relending programme, targeted cuts in required reserve ratios and provisional cuts to coverage ratios.
Meanwhile, the government has broadened the social security net by distributing 3.71 billion yuan in price subsidies to low-income families and provided benefits to 2.38 million who have been laid off.
The survey showed that families running small businesses were highly exposed to debt before the outbreak.
Millions of small businesses – such as convenience stores, diners, barber’s shops and traders – were forced to close during the lockdown to stop the spread of the coronavirus that causes Covid-19.
Analysts said their revenue was still far below pre-coronavirus levels despite government efforts to get the economy going again.
However, they still have to pay bills such as rent and employee salaries.

The economy faces further risks if wary consumers refuse to start spending again.
“Lingering fear of a return of coronavirus and uncertainty over income and job losses will weigh on consumption in the coming months,” Oxford Economics economists Louis Kuijs and Tommy Wu wrote in a note earlier this week.
Many economists have called for direct subsidies for these affected families and small business owners.
Yao Yang, dean of Peking University’s national school of development, called for a grant of 1,000 yuan for each Chinese citizen through special treasury bonds.
The rise of household debt could curtail the country’s consumption boost plan, as dozens of cities issued consumer vouchers to leverage private spending.
Coronavirus: China’s economy unlikely to be saved by ‘revenge spending’
China’s household leverage, measured in terms of debt to gross domestic product, has increased rapidly since 2008.
The ratio reached 54.4 per cent by the end of September 2019, an increase of 36.5 percentage points over the past 11 years and already surpassing Germany, according to the Bank for International Settlements.
Consumption contributed to 57.8 per cent of last year’s growth. But it was hit hard in the first quarter, with social retail sales down 15.8 per cent. Urban per capita disposable income fell 3.9 per cent year on year to 11,691 yuan in the first quarter, while their per capita spending dropped 9.5 per cent to 6,478 yuan.



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China economy

Chinese households faced high debt risk before coronavirus hit

Small business owners were among those most exposed to debt. Photo: Reuters

People wear face masks to protect against the spread of the new coronavirus as they walk through an outdoor shopping area in Beijing, Friday, April 24, 2020. China reported no new virus deaths for the ninth straight day, and just six new cases on Friday. (AP Photo/Mark Schiefelbein)

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Survey by central bank highlights problems the economy was facing before the Covid-19 outbreak
More than half of families were in debt, particularly the middle classes and small businesses



Survey by central bank highlights problems the economy was facing before the Covid-19 outbreak.


Chinese households faced high debt risk before coronavirus hit

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;} Survey by central bank highlights problems the economy was facing before the Covid-19 outbreak More than half of families were in debt, particularly the middle classes and small businesses

Survey by central bank highlights problems the economy was facing before the Covid-19 outbreak

More than half of families were in debt, particularly the middle classes and small businesses