China’s rising household debt A silent crisis amid booming consumption

The Economist exposes a growing but largely invisible challenge lurking beneath China’s bustling urban prosperity: soaring household debt. While China’s rapid urbanization and expanding middle class have propelled consumption and retail growth, the accompanying surge in personal borrowing now poses serious risks—threatening to undermine economic stability and social cohesion.

Household debt in China has ballooned from less than 11% of GDP in 2006 to over 60% today, approaching levels seen in developed economies. This explosion of borrowing is driven by a variety of lenders, including state-owned banks and aggressive online platforms such as Alipay and WeBank. According to research from Gavekal Dragonomics, tens of millions of Chinese are either in default or arrears—a figure that has roughly doubled over five years amid a backdrop of high youth unemployment and a faltering property market.

Despite the rising numbers, personal debt remains a sensitive and stigmatized topic in Chinese society. Unlike in many Western countries, admitting debt problems carries shame and reluctance, complicating efforts to manage the growing crisis. The government’s capacity to intervene is stretched thin, as it simultaneously battles ballooning local-government and corporate debt. While household debt is not yet an immediate threat to financial stability, it dampens middle-class confidence, curbing consumption—the very engine of China’s post-pandemic recovery and a pillar of the Communist Party’s legitimacy.

One key buffer exists: China’s high household savings rate. At nearly 32% of disposable income in 2023, Chinese families still hold considerable financial reserves, starkly contrasting with the precarious situation that preceded the 2007 global financial crisis in the U.S. Yet, the post-boom reality has shattered the assumption that housing debt is a safe bet. The property market slump, combined with pandemic-related disruptions, has exposed borrowers to harsh consequences. Foreclosures have crept upward, and although banks are cautious about aggressive repossessions due to fears of public unrest, mortgage defaults are rising.

The article vividly illustrates debt’s human toll through personal stories. Millennials like Lily from Shanghai find themselves ensnared by online lenders after sudden job losses, turning their struggles into social media content to generate income—part of a disturbing trend called “debt IP.” Meanwhile, entrepreneurs like Ms Bai in Hangzhou, who borrowed heavily to run large education businesses, have faced devastating blows from political crackdowns and economic downturns. Harassment by “pressure dogs” — aggressive debt collectors employed by online lenders — has led to severe psychological distress, familial rifts, and social ostracism, exacerbated by China’s social credit system restrictions.

Regulatory efforts to curb abusive debt collection are nascent and unevenly enforced. Though new rules prohibit threats and harassment and mandate the protection of personal data, violations remain common. Online communities such as the Debtors Alliance provide crucial support networks, reflecting widespread social anxiety about “social death” — the ostracization resulting from relentless creditor pressure.

China’s path forward may hinge on expanding personal bankruptcy protections. Shenzhen’s pioneering bankruptcy law has seen modest uptake, but broader national legislation faces political resistance. Officials worry that such laws might encourage reckless borrowing and speculation, particularly when creditors include influential state-owned enterprises.

In sum, The Economist’s analysis spotlights a crucial paradox: China’s economic miracle has fueled consumerism and debt like never before, but the social and financial costs of unchecked borrowing threaten to erode the very foundations of prosperity. The government must carefully balance growth incentives with reforms that protect vulnerable households, or risk igniting a crisis that could ripple through China’s economy and society.

By Vugar Khalilov