Defaults threaten China's spending push
Live Events as a Reliable and Trusted News Source Addas a Reliable and Trusted News Source Add Now! (You can now subscribe to our (You
Live Events as a Reliable and Trusted News Source Addas a Reliable and Trusted News Source Add Now! (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel Jack Chen has never defaulted on a loan since he began borrowing to cover expenses during his internship days, but his credit report now carries a red flag because of his swelling debt burden, and new loan applications are being rejected.That leaves the 27-year-old telecoms maintenance worker from Jiangsu province facing a default of around 140,000 yuan ($20,685) - equivalent to about a year's wages - across credit cards, online borrowing and a car loan, after his employer cut pay and scrapped a fuel allowance this year.Despite paring spending to only food, rent and gas, "the debt just kept rolling over and getting bigger," he said.Chen's story is becoming increasingly common in China amid both a bleak labour market and a protracted property slump. Consumer loan defaults have soared to record highs, and analysts expect the situation to worsen as lower-income Chinese in particular sink deeper into debt.It comes with Beijing actively encouraging consumers to borrow and spend as part of a years-long effort to pivot the stuttering, two-speed economic recovery towards domestic demand.
The economy grew at the slowest pace in over three years in the second quarter, official data showed on Wednesday, as a moribund consumer undermined robust manufacturing and exports.The People's Bank of China has repeatedly urged commercial banks to step up lending, but the banks have balked, instead tightening lending standards to protect themselves from additional bad debt.Short-term household loans contracted 7% year-on-year last month, data showed on Wednesday, in the latest evidence of an anaemic market.The PBOC and the Financial Regulatory Administration did not immediately reply to Reuters requests for comments.The conundrum is that, for the most part, only those with bad credit are looking to borrow."More creditworthy customers are reducing credit card usage," said Nicholas Zhu, a banking analyst at Moody's."Less creditworthy consumers remain active borrowers, leading to higher asset risks for lenders."The total stock of households' non-performing loans (NPLs) swelled by more than a fifth last year to an unprecedented 2.22 trillion yuan ($324.50 billion), according to Gavekal Dragonomics.The total, which equates to roughly 1.6% of GDP, means as many as one in ten Chinese adults fell behind on debt payments in 2025, the researcher said.The surge in bad debt is mainly the result of last year's relaxed credit issuance to meet government consumption targets, said bankers with knowledge of the matter.A loan officer at a mid-sized Chinese lender said its consumer loan risk model was revised this year to give increased weight to salary income when reviewing applications, following high default rates on loans that assessed borrowers based more on ownership of property and fixed assets.Banks are also managing rising defaults by avoiding immediate non-performing classifications, instead offering borrowers restructuring, payment extensions or time to sell property, sources said."We communicate with customers first.
The BriefWire