Bytheendof2017,theratioofChina鈥檚householddebttodisposableincomehadreached107.2percent,higherthanthatintheUnitedStatesandapproachingtheU.S.peaklevelbeforetheoutbreakofthefinancialcrisisof2008.
Thereportsaidthatauthoritiesshouldpaymoreattentiontotheproblemofhighhouseholddebtandregardhouseholddeleveragingasimportantasthedeleveragingofcorporatesandlocalgovernmentssoastopushrelevanteffortsaheadwithpracticalresultsandensuretheeconomyperformsinabalancedmanner.
Inotherwords,China鈥檚deleveragingdrivemayfalterifthefocusislimitedtocorporatesandlocalgovernments.
ThereasonsleadingtoChina鈥檚highhouseholdborrowingaremultiple.Firstofall,relevantanalysesshowthatakeyfactorliesinthesurgeofhousingpricesasidefromtheriseofdebtburdencausedbyincreasinghouseholdexpendituresoneducation,medicalcareandelderlycare.Morethan70percentofChinesehouseholdsarepropertyownersandmanyoftheirhousesareboughtthroughmortgageloans,fundsfromotherfinancinginstitutionormoneyborrowedfromrelativesandfriends.
Anotherimportantreasonisthattheperformanceofmanysmallprivateenterprisesisnotpromising,especiallyincoastalregionsinsoutheastChinawheretheprivateeconomythrives.Bytheendof2017,theratioofhouseholddebttodisposableincomeinmorethan10provincesandmunicipalitiesexceeded100percent.TheratiosinFujian,GuangdongandZhejiangprovinceshavesurpassedthepeakvalueoftheU.S.debt-to-incomeratiobeforethefinancialcrisisof2008,withBeijingalsoapproachingthishighlevel.Thatistosay,householddebtishigherinregionswithbetterdevelopedeconomiesandmoreprivateenterprises.
Ahighhouseholddebtratiowillnotonlyhindertheimprovementofresidentialconsumptioncapabilityandqualitybutalsostandinthewayofthedeleveragingoflocalgovernments.Thehighleverageofcorporatesandhouseholdsmayevenblockthedeleveragingofthefinancialsectorandexposebankstogreateroperationalrisks.
Thetighteningofhouseholdliquidityislikelytodragonthevitalityofcorporateoperationsandeventuallyaffectbanks,threateningthestabilityofthewholefinancialsystem.ResearchbySUFEshowsthatanincreaseof1percentagepointontheamountofnon-performingloansfromcommercialbankswilldecreasetheannualGDPgrowthrateby1.5percentagepoints.
Therefore,comprehensivepoliciesshouldbeadoptedtoreducethehouseholddebtratio.
ReformoftheincomedistributionsystemshouldbedeepenedsoastoensurethegrowthofresidentialincomesurpassesthatoftheGDPandhouseholds鈥檆apacitytoreducedebtleverageshouldbeimproved.
Thegovernmentalsoneedstoreformpersonalincometaxpoliciesandfurtherlowertaxesforindividualsandhouseholds.Theriseofhousingpricesshouldalsobecurbedtoensurethesounddevelopmentoftherealestatemarket.
Lastbutnotleast,Chinashouldimproveitssocialsecuritysystemandprovidemorepublicservicesandsupportforelderlycare,medicalcareandeducationtoeasepeople鈥檚concerns.
ThisisaneditedexcerptofanarticlewrittenbyMoKaiwei,aresearcherwiththeChineseAcademyofRegionalFinance,andpublishedinNationalBusinessDailyCopyeditedbyRebecaToledoCommentsto