As China Piles on Debt, Consumers Seek a Piece of the Action

Home mortgages represent a majority of China’s new household loans by value, adding to a surge in real estate prices. Car loans have been growing even faster in percentage terms. And credit card debt is now rising in a country that is otherwise dependent on cash or online transactions.

There are signs that China is moving on the fringes to contain mortgage lending, in part to tame housing costs. In the past week, banks in Beijing began raising mortgage interest rates. In a lengthening list of China’s largest cities, banks are under instructions to discourage the use of personal loans for real estate speculation. Six large cities established new home sales restrictions in recent days to cool off prices.

Surging property prices have helped keep consumer spending high even as China’s growth has slowed, giving its economy a lift. But more debt may not spur more growth — and could pinch the household finances of some.

“China will get less of a kick out of consumer debt in the coming 18 months than it did in the past 18 months,” said Louis Kuijs, an economist with Oxford Economics, a British research firm.

Some economists also worry that consumer loans may be a backdoor way for bloated companies to maintain or even expand their capacity. China’s domestic automakers — many of which are state-owned and suffer from too many underused factories — have unleashed a blizzard of zero-interest car loans in the past two years, often through their own financing subsidiaries. In that time, the majority of Chinese consumers began to pay for cars with credit instead of cash, according to J. D. Power and Associates, a global consulting firm.

To be clear, most economists consider China’s consumer credit splurge to be a good thing. Chinese families are nowhere near the borrowing levels of spendthrift Americans, whose household debt is equal to more than three-quarters of the annual economic output of the United States. In China, that measure is still less than half.

More Loans Than Growth

Household debt is still lower in China compared to the size of the economy than in many countries, but home mortgages, car loans and credit card debt are also growing a lot faster than the Chinese economy now.

Household debt as a share of G.D.P.


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