Property asset and mortgage loan are the two most important components in the balance sheet to ordinary Chinese households. Property asset represents the largest portion of assets to Chinese households, which is widely believed to be over two third, as the rate of property ownership is about 90% in China.

Despite of high percentage of home ownership, the ratio of debt to asset is on the rise continuously among Chinese urban families as taking on mortgage for the purchase of houses becomes a norm in cities. Home loan is the main component of the debt to Chinese families.

In particular those families of younger couples have the highest rate of debt. In contrast over half of the house owners in their age between 45 and 59 do not have mortgage.This is highly related to the system that government departments and state owned enterprises was distributing public housing to urban residents, a practice continued for decades until late 1990s.

Along with expansion of the Chinese economy, the household debt is increasingly becoming a significant element in the Chinese financial system. The rate of household debt to GDP rose from 18.7 in 2007 to 38% in 2016; the rate of total loan taken by households to the total national lending increased from 19.4% to 31.3% in the same period.

In comparison with developed economies and in line with the level of the Chinese economic development, the ratio of mortgage to asset is still low in China. However families in almost all categories face increased financial burdens as their debt moves up in a rate faster than their income. Specifically, the ratio of debt repayment to income (defined as monthly repayment of mortgage/monthly income) and balance of mortgage to value of property is on the rise. This situation is particularly the case to low income earners.

Though the total household debt is only 38% of China’s GDP, more than 1/3 of the families are heavily indebted as the rate of debt to income is more than 4.

Chinese household total debt including mortgage constitutes a small portion of the total asset to Chinese banks, but it could lead to a negative impact on the banks and the Chinese economy once the household debt further deteriorates.

The author of this article is senior researcher in Chinese Household Finance Investigation and Research Center.  Translation by Cathy Zhao and Ren Zegang