Sponsored

The escalating household debt in China ‘a major concern,’ warns experts

As the government strives to boost consumption amidst trade war

Couple calculating their debts. Rawpixel.com/Shutterstock

By the end of 2018, the household debt in China have expanded to 60.4 percent of the gross domestic product (GDP), reported the South China Morning Post, citing the annual financial stability report published by the People’s Bank of China (PBOC).

Moreover, for the first time in history, the household debt to income ratio accumulated to 99.9 percent.

Xia Le, chief economist for Asia at Spanish banking group BBVA, said the central bank has expressed their worries about the growing household debt.

“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,” he further explained.

More: GDP growth in China hits an all-time low

The central bank of China said that they have already issued a warning against mortgages and consumer loans that lead to the rapid increase in household debt. In 2018, the housing loan to income rate reached 47.7 percent, a 3.7 percent increase compared to a year before.

According to Fitch Ratings, consumer lending has also substantially grown, as the estimated outstanding balance of credit card receivables amounted to CNY7.23 trillion (USD1 trillion) during the first half of 2019.

Fitch also revealed that more people are struggling to settle their credit card debts. The late payments on credit cards, as well as requests for credit card loans have risen substantially in the first half of 2019.

As the government continues to prioritise consumption by enforcing tax cuts of up to CNY2 trillion, analysts doubt that this new policy will encourage spending among the locals due to the high debts in the world’s second biggest economy.

Recommended