Why so many Chinese are drowning in debt

Hindustan Times

08-07-2025

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% 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 GDP, household debt has risen from less than 11% in 2006 to more than 60% today, close to rich-country levels. Lenders include state-owned banks and tech platforms. Between 25m and 34m 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 61m and 83m, or 5-7% 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.
Chinese households have a buffer: overall, their savings relative to disposable income were nearly 32% in 2023, according to JP Morgan, a bank. That is far higher than the rate of less than 3% in America in the build-up to the global financial crisis in 2007. But in the boom years money borrowed for housing seemed like a one-way bet, especially as jobs were plentiful and secure. People grew accustomed to splashing cash from big online lenders such as Alipay and WeBank. Others borrowed to invest in family businesses. Then came zero-covid lockdowns in 2020 and the start of the property crash the year after. Whatever the origins, debt trouble and interactions with cuigou, or 'pressure dogs' (ie, aggressive debt-collectors) has been the result for many.
Start with property. Borrowing for housing made up 65% of household loans last year (excluding loans for business purposes). Most mortgage lending is done by government-owned banks who have to be careful about how they get their money back from those unable to pay. The number of foreclosed residential properties listed for auction last year was 366,000, slightly up from 364,000 in 2023, according to China Index Academy, a private research firm. The numbers of people failing to pay their mortgages may be growing much faster. Regulators are wary of aggressive repossessions involving people's primary homes: they worry about triggering public protests. Banks may be mulling another problem. In today's depressed market, auctioning a property may not recoup the mortgage. Online lenders, who provide a more modest share of mortgages, can be far tougher about getting their money back.
Spendthrifts are another group in trouble. Lily, a millennial in Shanghai, got into debt trouble when her employer, a software company, stopped paying her wages because of its own cashflow difficulties. She owed 30,000 yuan to online lenders. To help she is dabbling in 'debt IP'—when people turn stories of ruin into a means of generating cash as online influencers. She describes her travails as a debtor in short videos on her social-media accounts, but hasn't hit the big-time. Some of the most popular have hundreds of thousands of followers. 'Some people are even competing, oh, I'm 10m in debt, I'm 100m in debt,' she says.
Now consider investment debt. In Hangzhou, Ms Bai used to run a successful education business and took out personal loans of millions of yuan to invest in it. Many Chinese borrow to boost family-owned firms and lenders often require personal guarantees, putting households at risk if the ventures fail. At its peak, her outfit organised cramming classes for between 50,000 and 60,000 students at 30-odd tutoring centres, generating an annual revenue of 100m-200m yuan ($14m-28m). Then came covid-19 and a political crackdown on crammers. She had to sell her house and car to pay the debt.
Dealing with the banks was the easy bit, however. During the pandemic the government urged them to be gentle with debtors whose businesses had been affected by it; they agreed to waive tens of thousands of yuan in interest. The tough part was dealing with the pressure dogs hired by online lenders from whom she had borrowed money for personal use. They repeatedly called Ms Bai, her friends and her relatives, often from different phones so they couldn't be blocked. She is particularly angry about the harassment of her parents. 'In China,' she says, 'we generally don't tell our parents about bad news, so they were very, very affected.' Ms Bai became depressed and thought of suicide. Her husband divorced her.
Regulations relating to the debt-collecting industry are new and patchily enforced in China. Rather than helping Ms Bai, a court put her on a 'social credit' blacklist, which meant she could no longer fly, use high-speed trains or stay at luxury hotels.
So where can debtors find relief? Support groups for them have been growing online. Jiaqi Guo of the University of Turku in Finland has been studying one of them, called the Debtors Alliance, on Douban, a social-networking site. Founded in 2019, it now has more than 60,000 members. Dr Guo says users often discuss shesi, meaning 'social death'. It refers to the destruction of relationships caused by 'contact bombing', as the debt collectors' phone calls are described.
As their numbers rise, the government has tried to show a modicum of sympathy with the plight of debtors. Last year it banned debt-collection agencies from threatening violence, using abusive language or calling people at anti-social times. It also reminded lenders to protect personal information (presumably meaning, stop misusing contact details). But data-privacy regulations are loosely enforced in China. Complaints aired on the debtors' forum suggest little change in the collectors' threatening and intrusive behaviour.
One reform that might help is the introduction of a personal bankruptcy law, of the kind found in rich countries, to protect debtors from claims that would leave them totally destitute. The lack of such legislation has fuelled the growth of online loan-sharks offering high-interest credit to desperate defaulters. In 2021 Shenzhen became the first city to introduce a bankruptcy law for individuals. But it has been used with caution. By the end of September 2024 more than 2,700 people had applied for bankruptcy protection under this law but courts had only accepted about 10% of their cases. A few other places have also been conducting trials of similar schemes. But the government appears in no hurry: creditors are often big state firms. Officials worry that a national law might signal tolerance of reckless spending or speculative investment.