China: How China’s billion savers embarked on a household debt binge – 7 Aug 2017

  • The rising wealth of urban residents, based upon an almost uninterrupted property boom, and the growing debt levels in Chinese households are also set to shift the global economic balance.
  • China’s massive money supply, urbanisation and a mortgage loan boom have resulted in a hefty rise in household debt, which is now equivalent to 44.4% of national gross domestic product, triple the level in 2008, according to the Bank for International Settlements.
  • The net savings of Chinese households, defined as total outstanding deposits minus total outstanding loans, have stagnated or even begun to fall, showing that Chinese people are saving less and borrowing more.
  • Although China’s household debt level is still low compared to the 79.5% of GDP in the US and 62.5% in Japan, it has risen too steeply to be safe, according to a research report by the Institute for Advanced Research.
  • “As early as in 2020, the ratio of mortgage payments and disposable incomes in China will match the peak level in the US before the financial crisis,” it concluded, adding that the rising debt burden would “restrict China’s economic growth to some extent”.
  • More than half of Chinese family wealth is now held in the form of property and, according to the Chinese Academy of Social Sciences, residential mortgages comprise 60.3% of household debt.
  • The rapid rise of leverage and household debt has sparked concerns China could be galloping down the same road to ruin followed by Japan in the early 1990s and the US in 2008.

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