Chinese Household Debt Surges to Nearly Half of GDP


A new report indicates that China’s household leverage ratio has undergone surging growth in the near-decade long period since the Great Financial Crisis.

A report from the National Institution for Finance and Development (NIFD) indicates that China’s household leverage ratio – the ratio of household debt to national GDP – hit 49% as of the end of 2017, as compared to 17.9% at the end of 2008, for a rise of 3.5 percentage points per annum across the intervening period.

In sharp comparison the household leverage ratio rose at an annual rate of 0.65 percentage points from 1993 – when data was first released and the leverage ratio was 8.3%, until 2008.

Growth in China’s household leverage ratio has also accelerated in recent years, expanding at a rate of around 4.9 percentage points in 2016 and 2017.

NIFD analyst Liu Lei said at a press briefing that China’s household debt might actually be 8 percentage points higher than the reading produced by the report, if other forms of credit such as P2P platforms and private mock loans are included.

While state-owned enterprise leverage and local government debt has been the focal point of discussion in Chinese financial circles, according to NIFD accelerating growth in household debt was the chief driver of China’s overall leverage growth in 2017.

China’s banking regulator recently raised eyebrows during the Two Sessions by making explicit reference to the need to curb roaring growth in household debt levels for the first time.

NIFD is nonetheless sanguine about China’s household debt levels, stating that associated risk “shouldn’t be exaggerated,” pointing out that average disposable income can cover standard loan interest and mortgage repayments.

Chinese households can also fall back on a copious volume of savings, with their bank deposits and the overall cash standing at 70 trillion yuan, as compared to 40 trillion yuan in outstanding bank debt.

Surging household leverage can be imputed to changes in Chinese attitudes towards debt as a result of the profligate monetary policy implemented by the People’s Bank of China since the Great Financial Crisis.

Beijing’s monetary easing has done little to reward frugal savers, yet brought tremendous wealth to highly leveraged property investors who have ridden the surge in the Chinese real estate market.