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The PBOC issued a research paper on the Chinese households credit situation highlighting that a household credit boom could tend to drag down economic growth more so than corporate debt.  Mortgages are handcuffing China’s economic potential, as funding is redirected toward real estate and away from more productive uses.

China Debt

China has seen a rapid increase in household debt in China at the same time as the massive corprorate and shadow banking debt. Household debt has been driven by attractive mortgages & the relaxation in lending standards.

Banks that once lent primarily to industry have recorded expanding growing mortgage books. The mortagage debt is handcuffing China’s economic potential, as funding is redirected toward real estate and away from more productive uses.

Research Highlights

  • Household leverage slowed real per-capita GDP growth by 3.7% in five years
  • Due to indebted households reducing consumption
  • Highly-indebted households are vulnerable to negative income changes
  • Recommend that policy makers strictly control the leverage of households

China's Household Debt reached 9,979.8 USD bn in Feb 2021, compared with the reported number of 10,027.3 USD bn in the previous month. China Household Debt reached an all-time high of 10,027.3 USD bn in Jan 2021 and a record low of 517.7 USD bn in Jan 2007.

China Domestic Credit reached 38,394.7 USD bn in Feb 2021, representing an increased of 11.5 % YoY. The country's Non Performing Loans Ratio stood at 1.8 % in Dec 2020, compared with the ratio of 2.0 % in the previous quarter.

Households Debt in China increased to 61.10 percent of GDP in the third quarter of 2020 from 59.10 percent of GDP in the second quarter of 2020. source: Bank for International Settlements

China Households Debt To GDP

China’s household debt ballooned in the first half of the year, rising by about $380 billion, according to new Bank for International Settlements data. That increase was almost four times as large as the second-place U.S.

The PBOC research paper reiterates China’s biggest economic vulnerabilities which the Bank for International Settlements reported on last year. While the CCP pushes that China’s industrial production and exports have helped to power its recovery in 2020/21 there are debt bombs lurking. The continued rapid rise of real-estate investment outstripped GDP growth again in 2020, as it has in 16 of the past 17 years affects consumption.

While interest rates in 2020 fell sharply in most countries the People’s Bank of China resisted this trend. The result is borrowers were not able to refinance real-estate loans at lower rates. Previous rampant speculation concerns the PBOC. The WSJ reported that units that could house hundreds of millions of people, equivalent to about a fifth of the urban housing stock, are estimated to be vacant. With that backdrop thee rental market in China is very underdeveloped. Where there is a market yields are usually well below those offered by government bonds.

From The Traders Community News Desk

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