The growth and level of corporate debt in China has received significant attention, but household debt has also grown rapidly, albeit from a much lower base. The rise in household debt over the past decade is notable because it can negatively affect both financial stability and economic growth.[1] This Box assesses the direct risk that household debt poses to the financial system in China.
Household debt in China has grown at an average annual rate of more than 20 per cent over the past decade. As a result, the ratio of household debt to GDP has increased sharply, from about 20 per cent in 2009 to around 55 per cent currently (Graph A.1). This ratio is lower than in most advanced economies, but is higher than in many other large emerging market economies. Further, the ratio of household debt to household disposable income is higher relative to other countries, because household income is a low share of GDP in China. This ratio reached 112 per cent in 2017, up from 43 per cent in 2008, and is now comparable to the United States, Euro area, Japan and the OECD average.[2]
Graph A.1
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
