Is Surging Household Leverage Behind China’s Property Bubble?


One of China’s leading economic analysts points to surging levels of household leverage to over 90% of income as a key driver of property bubbles in the country, despite a clampdown on housing leans.

Jiang Chao (姜超), chief macro-analyst with Haitong Securities, notes in Cailian that while personal home loans basically ceased to grow in the first seven months of 2017, short-term personal loans rose to 1.06 trillion yuan, for a year-on-year increase of 750 billion yuan, while household commercial loans reached 4.3 trillion yuan, for an increase of 27% compared to the same period last year.

In Jiang’s opinion the covert use of this surging household borrowing for property investment is a key driver behind overheating housing markets, given that home loans are no longer posting increases.

“Households are still increasing leverage in a frenzy,”  writes Jiang. “This is the fundamental reason that the real-estate market continues to flourish as it did before.”

According to Jiang China’s household sector has added 20 trillion yuan in leverage over the past three years, pushing its total debt level to 42 trillion yuan, and the household debt-to-income ratio to over 90%.

Jiang expects this to bode poorly for the future of China’s property market given the contribution that household leverage made to the 2015 Chinese stock market crash.

“In 2015 Chinese households used margin financing to increase their leverage by over 2 trillion yuan for share market investments.

“In a brief period the bull market turned around and plunged, necessitating the injection of vast amounts of capital by the government in order to slowly contain the decline…how long can a real estate bubble that depends upon leverage persist?

“Only after the bubble bursts and everyone relies on hard work instead of speculation to become rich will we truly see a new cycle.”