Household debt ratio not a cause for concern

Household debt is closely related to financial risk. The subprime crisis in the United States in 2008 made it almost impossible for many US families with low credit ratings to repay their housing loans, which in turn led to the global financial crisis whose negative impact on the world economy is still evident.

As far as China’s household debt level is concerned, experts’ opinions vary. Forty-eight percent of the interviewees recently interviewed by Tencent Financial Technology Think Tank said they consider the overall debt level of Chinese families to be comparatively high, while 39 percent of them said it was moderate, and 8 percent said it was relatively low.

China’s household debt ratio to GDP does not seem to be too high. Although housing prices in many Chinese cities have stabilized, even declined in some, the high cost of property means the majority of Chinese families take out mortgage loans to purchase housing. By the end of 2017, China’s household loan balance was 40.5 trillion yuan ($6.02 trillion), an increase of 21.4 percent year-on-year, which accounted for 49.3 percent of the country’s GDP that year. By any means, it is a relatively low debt level compared with those of developed countries. In 2017, the United States’ household debt ratio to GDP was 80 percent, and the United Kingdom’s annual household expenditure exceeded the yearly income for the first time in three decades. In Germany and Japan, too, the household debt ratio to GDP exceeded 50 percent.

However, China’s household debt has increased rapidly. In 2008, China’s household debt ratio to GDP was only 17.9 percent, which means it increased more than 30 percentage points in only one decade, due mainly to housing mortgages.