Soaring household debt
PROPERTY BOOM: Surge fuelling fears sharp drop in prices may cause loans to go bad
CHINESE household debt has risen at an “alarming” pace as property values have soared, say analysts, raising the risk that a real-estate downturn could send shockwaves through the world’s second-largest economy.
Loose credit and changing habits have rapidly transformed the country’s famously loan-averse consumers into enthusiastic borrowers.
Skyrocketing real-estate prices in major cities in recent years have seen families’ wealth surge.
But at the same time, they have fuelled a historic boom in mortgage lending, as buyers race to get on the property ladder, or invest to profit from the phenomenon.
Now, the debt owed by households has surged from 28 per cent of gross domestic product (GDP) to more than 40 per cent in the past five years.
“The notion that Chinese people do not like to borrow is clearly outdated,” said Chen Long of Gavekal Dragonomics.
The share of household loans to overall lending hit 67.5 per cent in the third quarter of this year, more than twice the share of the year before. But this surge had raised fears that a sharp drop in property prices would cause many new loans to go bad, causing a domino effect on interest rates, exchange rates and commodity prices that “could turn out to be a global macro event”, said ANZ analysts in a recent note.
If China’s household debt ratio keeps growing at its current pace, it will hit 70 per cent of GDP in a few years.
The government has set a target of 6.5 to seven per cent economic growth for next year, and the country is on track to hit it thanks to a property frenzy in major cities and a flood of easy credit.
But keeping loans flowing at such a pace created such “substantial risks” that it could be a “self-defeating strategy”, said Chen.
China’s total debt, including housing, financial and government sector debt, hit 168.48 trillion yuan (RM111.7 trillion) at the end of last year, equivalent to 249 per cent of national GDP, according to estimates by top think tank Chinese Academy of Social Sciences.
Authorities “desperate” to keep GDP growth steady had turned to consumers as a source of finance because “many of the sources of capital through the banks and corporations are essentially used up”, said Andrew Collier of Orient Capital Research. AFP