China’s consumers continued their borrowing binge last year even as growth in incomes lagged, driving the country’s household debt-to-disposable income ratio to a record and prompting a warning from the central bank about the need for tougher action to ward off risks, reported Caixin.
Outstanding household loans jumped 18.2% to RMB 47.9 trillion ($6.8 trillion), a growth rate 7.5 percentage points higher than that of nominal disposable income, according to data in the People’s Bank of China’s (PBOC) annual Financial Stability Report (FSR) published Monday. That pushed the ratio up to 99.9% at the end of 2018 from 93.4% in 2017. Outstanding household loans have doubled since 2014, when the figure stood at RMB 23.1 trillion.
The PBOC’s report adds to growing concerns that the rapid increase in household debt could pose risks to the stability of China’s financial system and the sustainability of its economic growth over the medium term by curbing consumption.
“The rapid pace of household debt growth in China is more of a concern than the level,” global ratings company Fitch Ratings wrote in a special report on the country’s household debt in July. “Should China’s gap with international peers effectively close in the next two to three years, this would add considerably to the country’s overall macroeconomic vulnerabilities, given the corporate debt burden that is already among the world’s largest by most measures.”