Falling incomes and job insecurity squeeze household finances
Less capacity to repay debt, with consumption also weakening
Sluggish sales at domestic-market businesses hamper investment recovery

Chinese households are struggling with falling incomes and job insecurity, weakening their ability to repay debt and sustain spending. Credit card delinquencies are rising even among middle-aged employees whose repayment capacity banks had trusted, revealing increasingly strained household finances. With the property slump also eroding asset values, households have cut spending, while businesses serving the domestic market are hesitant to expand investment amid sluggish sales. The Chinese government is trying to fill the gap left by the property downturn by fostering advanced industries, but increased production has not translated sufficiently into job and income growth, leaving the consumption recovery without momentum. As industrial support expands production capacity while household purchasing power stagnates, concerns about a prolonged downturn are mounting.

Chinese bad debt offered for sale surges 50% in one quarter

According to the South China Morning Post (SCMP) on the 26th, newly registered debt on the Banking Credit Assets Registration and Circulation Center, an official platform for trading nonperforming loans, totaled CNY 148.1 billion in principal and interest (approximately USD 23.1 billion) in the third quarter of this year, up about 50% from the previous quarter. Delinquent credit card debt accounted for 35.2%, the largest share of any single category. Debt offered for sale has continued to accumulate this month, with 82 new debt portfolios registered through the 22nd. Cumulative registrations from January through September totaled CNY 322.2 billion (approximately USD 49.1 billion), up 26.4% from the same period last year.

Alongside sales of nonperforming loans, banks are increasingly setting aside provisions against losses. According to Chinese financial news outlet Caixin, many listed Chinese banks saw an increase in troubled personal loans in the first half of this year, while impairment provisions rose 17.8% from a year earlier. Weaker repayment capacity among borrowers, coupled with tighter loan classification standards, has increased the burden on banks to recognize bad loans and prepare for losses. All six of China’s major state-owned banks reported higher personal loan nonperforming loan ratios at the end of June than at the end of last year. Bank of Communications recorded a ratio of 2.02%, up 0.44 percentage points, while Industrial and Commercial Bank of China’s ratio rose 0.19 percentage points to 1.77%.

As troubled personal loans increase, credit card delinquencies are spreading even among middle-aged employees whose repayment capacity banks had trusted. The average age of delinquent cardholders disclosed by major financial institutions was generally between 40 and 50, and Ping An Bank also explicitly described these borrowers as middle-aged. An employee handling credit card operations at a state-owned bank’s Shanghai branch said, “Delinquencies are increasing even among customers with stable jobs at state-owned enterprises and government agencies.” Many delinquent customers reportedly said pay cuts or job losses had made it difficult to pay their credit card bills. With incomes falling, they have prioritized mortgage principal and interest payments and family living expenses, putting credit card repayments off until later.

Table 1. Rising nonperforming loans and spreading personal loan delinquencies in China

100 million Chinese adults unable to repay their debts

Rising delinquencies among middle-aged people with stable jobs are seen as a sign of how much household spending capacity has weakened. An analysis of financial data from 26 banks and other sources by investment research firm Gavekal Dragonomics found that China’s nonperforming household debt reached CNY 2.22 trillion (approximately USD 338 billion) at the end of last year, up 21% in a year. An estimated 100 million adults were unable to make timely payments on credit card loans, mortgages and other debts. Total household debt has roughly tripled over the past decade to CNY 83 trillion (approximately USD 346 billion), while falling incomes and job insecurity have left more borrowers struggling to repay. China also lacks a nationwide personal bankruptcy system through which individuals overwhelmed by debt can restructure their obligations or receive a discharge, leaving insufficient mechanisms to help delinquent borrowers resume economic activity.

The consumption recovery is also being constrained as debt-burdened households cut spending and banks tighten lending requirements. This year, the Chinese government tripled the cap on consumer loan interest subsidies to CNY 3,000 per person (approximately USD 462) and expanded eligibility to include credit card installment payments. Banks, however, have continued tightening screening to prevent further bad loans. Demand for borrowing to finance consumption has also been weak, with outstanding short-term household loans falling 7% year on year in June. Even customers with strong credit ratings are reducing card use, making it difficult to lift consumption. According to global credit rating agency Moody’s, highly creditworthy customers are cutting back on credit card use, while consumers with weaker credit remain reliant on loans. As borrowing by customers capable of repayment declines while demand persists among financially strained borrowers, banks face increasing bad-loan risks.

Property slump drives simultaneous contraction in consumption and investment

The property downturn weighing on household consumer confidence is also dragging on. Falling home prices have reduced the value of household assets, apparently prompting people to continue postponing home purchases and spending. According to China’s National Bureau of Statistics, property investment fell 20.6% year on year from January through September this year, while home sales also weakened. When homes fail to sell, developers receive less cash from sales, leaving them short of funds for land purchases and new construction. Weak sales therefore also obstruct an investment recovery. The delayed property recovery has prompted forecasts that sluggish domestic demand could persist. Last month, Oxford Economics senior economist Sian Fenner forecast that China’s residential property investment would not recover until 2031 and lowered her growth forecast for next year to 4.3% to reflect the prolonged downturn.

As the property slump leads to weaker consumption and investment, concerns are mounting that China could enter a “lost decade.” Observers warn that if households and businesses whose assets have lost value curb consumption and investment to reduce debt, they could become trapped in a vicious cycle in which falling sales and weak incomes trigger further spending cuts. According to the Financial Times (FT), some economists regard the bursting of the property bubble in 2021 as the start of China’s prolonged slump and believe the country is already halfway through a “lost decade.” Their analysis suggests that China will struggle to escape insufficient demand unless the government makes up for spending cuts by a private sector focused on repaying debt. Richard Koo, chief economist at the Nomura Research Institute, who has studied Japan’s prolonged downturn, also noted that although recognition of the need for fiscal stimulus has broadened within China, the government’s policy stance has not changed sufficiently. The warning is that if the government is slow to respond while the private sector remains reluctant to spend, the impact of the property slump could persist for a long time.

Table 2. Key indicators of production, consumption and investment in China

Weak domestic demand erodes the impact of industrial stimulus

However, the Chinese government’s stimulus funding is concentrated on expanding production capacity in advanced industries, exposing its limitations in offsetting weaker private consumption. Even if massive funding for industrial development boosts supply, companies must find overseas markets for the additional output if domestic purchasing power cannot support it. Production has already risen sharply in advanced industries receiving concentrated government support. According to China’s National Bureau of Statistics, value added in advanced manufacturing increased 14.3% year on year from January through September this year, while lithium-ion battery and industrial robot output rose 39.5% and 29.1%, respectively. By contrast, retail sales grew just 1.1% over the same period, indicating a slow domestic consumption recovery. Companies unable to secure sufficient markets at home have little choice but to rely more heavily on overseas sales. Ultimately, if production support continues without a recovery in domestic demand, much of the benefit of subsidies is likely to accrue to overseas consumers buying low-priced products.

Weak domestic demand also weighs on the government’s plan to fill the gap left by the property slump by fostering advanced industries. Without strong expectations of higher domestic sales, companies are reluctant to spend money building factories or expanding equipment. China’s total fixed-asset investment fell 7.2% year on year from January through September this year. Investment excluding property development also declined 4.2%, showing that the contraction extends across multiple industries. Private investment fell 10.4% as well, with little sign of a revival in corporate expansion. Even as output rises in advanced sectors receiving concentrated government support, domestic sales prospects have not improved enough to drive a broad recovery in business investment.

Weak employment and incomes obstruct economic restructuring

With support for advanced industries failing to translate into a broader investment recovery, China’s transition to a new growth model is also encountering difficulties. Even as new industries grow in an economy long reliant on property and infrastructure investment, it takes time to replace the jobs and incomes lost in traditional sectors. China has focused on expanding production facilities through local governments’ investment promotion efforts and funding from state-owned banks. According to the International Monetary Fund (IMF), making household consumption an engine of growth also requires changing the allocation of resources concentrated on businesses and local governments’ policy incentives that prioritize investment performance. However, reducing business support and raising taxes to fund social welfare carry the risk of a short-term economic shock. If new industries fail to adequately replace the jobs and incomes lost in existing sectors, consumption is likely to recover slowly even with increased household support.

The employment structure is another obstacle preventing expanded production in advanced industries from translating into a recovery in domestic demand. Sectors heavily promoted by the Chinese government, such as electric vehicles, rely on large-scale facilities and automation, so increased production has only a limited effect on new hiring and household income growth. In a Reuters commentary on the 25th, Manishi Raychaudhuri noted that investment in advanced manufacturing had supported growth but had only a limited impact on alleviating unemployment. He also pointed out that funding allocations prioritizing technological self-reliance had reduced support for labor-intensive industries. This means that insufficient hiring growth in advanced sectors, combined with diminished capacity to support industries that employ large numbers of workers, has made job insecurity even harder to address. Job insecurity also affects spending by households whose members remain employed. They postpone current consumption and increase savings to prepare for the possibility that their incomes could fall or disappear. A 2024 People’s Bank of China survey cited in the commentary also identified a weak labor market as a reason for the rising savings rate.