China’s Household Debt, Part I: The Last Frontier

We recently examined China’s rising household debt burden in detail, and will provide our findings in a series of three shorter notes. This first installment will highlight the recent growth of household debt, outline the sources of this debt, and discuss financial vulnerabilities from the impact of virus-related shutdowns on China’s economy. The second note, published next week, will dive into regional credit data and detail which provinces in China are most exposed to household debt. The third installment will focus on the banks involved in this boom in household credit. In this note, the key findings are:

• China’s recent household debt expansion rivals that of the United States pre-crisis, within a smaller economy. Over the past five years from 2015 to 2019, China’s households have added $4.6 trillion in borrowing, compared to a $5.1 trillion expansion in US household debt from Q3 2003 to Q3 2008.
• Most household debt is linked to the property market, so household debt growth should slow this year. Property sales have been impacted by the virus, and mortgage loan growth should decelerate, along with overall household debt.
• The economic fallout of the virus outbreak may include rising household defaults. The industries hit hardest by virus-related shutdowns are among the lower-wage industries in China.