Growth in China’s household debt sparks worries over financial instability
Jul 05, 2019 (China Knowledge) - China's credit-card debt has increased by over 6 times since 2012. The rising household debt has raised concerns about potential risks to Chinese banks.
It is estimated that unsecured consumer lending in mainland China will increase at an annual rate of 20% in the next 2 years, according to S&P Global Ratings. Liang Yu, a credit analyst of S&P, said it’s highly likely that marginal players and latecomers into the unsecured consumer lending market will tap into riskier customers in order to compete.
The increase of household debt in China has sparked concerns about whether the country will repeat Hong Kong, South Korea, and Taiwan’s histories. Those markets experienced booms in their household debts which resulted in a recession. As domestic consumption has become a major driver of China’s GDP growth, worries have been further deepened.
Housing lending outstripped corporate borrowing to become the largest contributor to China’s loan growth in 2018.
The ratio of household debt to GDP in China has increased from 29.9% in 2012 to 53.3% last year and stood at USD 7.4 trln at the end of March this year. Although the figure is lower than that of most developed markets, it is considerably higher than that of other developing Asian markets.
Two years ago, the International Monetary Fund (IMF) warned that the increase in China’s household debt could amplify the macroeconomic consequences of negative shocks. The People’s Bank of China has taken countermeasures to mitigate exposures to banks, as it has set a ceiling of annual interest rates on credit cards between 12% and 18% and improved its credit monitoring system.
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