China’s household debt a growing risk to economy

Faced with expensive medical bills to treat breast cancer, the 38-year-old nurse from Heilongjiang in northern China is struggling to repay her mortgage and relies on financial support from her wider family to pay for her healthcare. To cut household costs, she waits until the local food market is about to close before buying because that is when remaining fresh produce is sold at a discount. “People say that when it’s about to close is the time that produce is cheapest,” said Li. “So now I go at that time.” Li’s experience show’s the vulnerability of Chinese consumers, who are taking on record amounts of debt even as income growth slows, adding to the challenge for policymakers of preventing the economy from slowing too quickly. China’s household debt as a proportion of GDP has more than doubled to 40.7% in less than 10 years. While developed nations have higher rates of household debt, Chinese families are much more leveraged because income is lower and so proportionately the costs of social welfare from pensions to healthcare are much higher. At the end of 2014, the out-of-pocket health spend in China as a percentage of total expenditure was 32%, compared to 9.7% in Britain and 11% in the United States, World Health Organisation data shows. “Household debt leverage is very alarming, even though the aggregate amount is controllable,” said Wan Zhe, chief economist at China National Gold Group Corporation, visiting researcher at Chongyang Institute for Financial Studies, Renmin University of China. “The first issue is that household debt has risen too quickly, the second is that it has risen too quickly as a proportion” of GDP and disposable income, said Wan. Underlining these concerns, authorities are trying to calm a property rally. In the latest move, regulators told banks to limit the issuance of home loans, the Shanghai Securities Journal reported on Thursday. The balance of retail mortgages at the end of the third quarter hit 16.8tn yuan ($2.5tn), more than a third higher than a year earlier, China central bank data shows.