Economists have warned that the rapid growth in household debt in China could pose threats to the country’s medium-term economic growth and, if left unchecked, poses greater risks to national financial stability, Caixin reports.
Since 2008, China’s household leverage ratio has risen by an average annual rate of 3.5 percentage points, hitting 49% at the end of 2017, according to central bank figures. Zhang Xiaojing, deputy director of the Institute of Economics at the Chinese Academy of Social Sciences, says that the ratio should grow no faster than 3 percentage points a year to avoid substantial risks.
This pace extended into 2018, with household leverage rates reaching 52.5% in the third quarter. Beijing-based think tank National Institution for Finance & Development (NFID) forecasts that last year’s growth rate outpaced the average for the last decade.
The IMF posits that 30% leverage levels are when risks to economic growth kick in, and anything above 65% will bear on financial stability. Although China’s ratio is below the international average, its current growth curve is similar to that seen in the US before the 2008 crisis, notes Li Yang, chairman of the NFID.