Easy credit set to double household debt
Print Edition
WHEN Wu Qi and her husband traded in their Mazda for an expensive Mercedes, they sought a 200,000 yuan (US$29,000) bank loan. They got the money in minutes.
Quick and easy access to credit has encouraged many young Chinese into debt to buy cars and apartments they could not otherwise afford.
“It is very easy — the car company encourages you to borrow the money and enjoy the car,” said Wu, 39, adding that the couple is also paying off a 1 million yuan mortgage for a three-bedroom flat in Beijing.
Household debt has become the major driver of China’s credit growth, expanding by an average of 19 percent a year since 2011, said Chen Long, an economist at Gavekal Dragonomics.
If it continues to grow at this pace, household debt would reach roughly 66 trillion yuan by 2020 — more than double the current level — and potentially 70 percent of GDP compared to 30 percent in 2013.
“Other countries have usually taken decades to complete such an increase,” said Chen.
“For bank lending to households to rise very rapidly usually means lending standards are loosened so credit is extended to both more and less creditworthy consumers.”
Mortgages make up the bulk of household debt.
Chinese have long favored putting their savings into bricks and mortar due to low bank rates, volatility in the stock market and rules that make it difficult to invest abroad.
But as apartment prices have soared — often doubling within a few years, particularly in major cities — fears of a real estate bubble have mounted.
The government has responded by periodically tightening restrictions on property purchases and raising minimum downpayments — up to 80 percent for a second home in Beijing — to stabilize the market. But prices continue to rise, forcing young homebuyers deeper into debt.
Wang Yuchen, 28, borrowed 3 million yuan from the bank in August to buy a 4.75 million yuan apartment in Beijing. Lacking enough cash, he turned to his parents and friends to help pay the deposit.
Borrowing money for a car is also becoming more popular as consumers take advantage of low interest rates.
Chinese policy-makers are taking action to tighten balance sheets, halt risky lending and dispose of bad loans.
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