The debt crisis for Chinese people seems to be increasing at an alarming rate. As per a report by The Economist, household debt saw a jump from a mere 11% in 2006 to a whopping 60% in the current time.
This has even led to the Chinese government bringing out policies and plans to get people to grapple with this debt. This isn’t a new development, though; the household debt crisis of China has been the topic of several reports and debates for several years now.
But why is the crisis so bad? Why are so many Chinese people going into debt for a country that otherwise portrays itself as having a strong and thriving economy?
What Is China’s Debt Crisis?
As per research consultancy, Gavekal Dragonomics, an estimated 25 million to 34 million people are reportedly in loan default. The number increases to a more concerning 61 million to 83 million if those who are in arrears are included. This possibly includes at least 5-7% of the population, aged 15 and above.
In another The Financial Times report, 2020 saw 5.7 million defaulters, but the numbers saw a rise to 8.3 million by 2024, an alarming 46% increase. Reports have also estimated that over the years, household debt stands at over $11 trillion.
Rising unemployment among the youth and a slump in real estate have only added to the crisis. According to a report by The Economist, while household debt is not an immediate concern, it does have other ripple effects on the economy.
This is because with rising debt, the middle-class prioritise clearing that and spend less on other things, barely anything on luxury goods.
While the JP Morgan bank has talked about the buffer Chinese households had, around 32% of savings relative to disposable income in 2023, overpsending on online lenders like Alipay and WeBank, the COVID-19 lockdowns and the eventual property crash due to them has resulted in debt soaring and problems with cuigou (pressure dogs or aggressive debt collector).
Read More: Banking For Minors Is Here, But Do We Really Need It?
Borrowing makes up a good majority of household loans, almost 65%, and the number of defaults in them is even higher.
China Index Academy, a private research firm, has revealed that around 366,000 foreclosed residential properties were put up for auction last year. This was an increase from 364,000 properties in 2023.
Companies going into cashflow difficulties and unable to pay the salaries of their employees are also adding to the debt crisis.
As per an April 2024 report by Firstpost, it was claimed that Chinese authorities were blacklisting debtors, which would make it difficult for their daily lives, including everyday activities like making online transactions, using toll roads, using electronic payment apps like Alipay and WeChat.
A Voice of America (VoA) also added that the lack of cash usage in the country, with many stores only accepting card payment, made it difficult for defaulters to even buy something as basic as food. They also could not use high-speed rail and air travel, buy expensive insurance plans, or even go on vacations.
A Wall Street Journal report states that “Failure to adhere to these restrictions can result in detention by authorities.” Blacklisted debtors were also reportedly being excluded from civil servant jobs, or applying for more loans.
Image Credits: Google Images
Sources: Hindustan Times, Al Jazeera, The Economist
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This post is tagged under: Chinese, Chinese people, Chinese debt, Chinese people debt, china debt, china debt crisis, china household debt, china loans,
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