Why so many Chinese are drowning in debt

Some contemplate suicide. Others vaunt their folly as influencers.

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The rise of a property-owning, entrepreneurial middle class in China has transformed its cities this century. It has helped to drive consumption in the world's second-largest economy. In May, retail sales grew 6.4 per cent year on year — the fastest pace since December 2023 — helped by state subsidies aimed at reviving consumers' enthusiasm. The government has even cautiously promoted borrowing in past years.

But all this has created new risks. Along with car-jammed streets, glitzy restaurants and vast malls has come a massive, invisible change, no less far-reaching: soaring household debt.

As a proportion of China's gross domestic product, household debt has risen from less than 11 per cent in 2006 to more than 60 per cent today, close to rich-country levels. Lenders include state-owned banks and tech platforms.

Between 25 million and 34 million people may now be in default, according to Gavekal Dragonomics, a research consultancy. If those who are merely in arrears are added, the total could be between 61 million and 83 million, or 5 to 7 per cent of the total population aged 15 and older. In both categories, these numbers are twice as high as they were five years ago, the firm reckons. Amid high youth unemployment and a property slump, the situation will probably only worsen.

Dealing with personal debt remains shameful and unfamiliar in China. But the government is struggling to help. It is already busy tackling debt throughout the system: local-government debt remains painfully high, and corporate debt uncomfortably so. Household debt is one more thing to worry about. It is not an imminent threat to financial stability. But it weighs increasingly heavily on the minds of middle-class people, inhibiting their spending and undermining a belief in ever-rising prosperity that the Communist Party sees as crucial to its grip on power.