Broader cultural shifts in attitudes toward spending in China could very well be playing a major role in China’s growing debt problem. Recent estimates of total debt in China are as high as 280 percent of the GDP.
Along with being largely more tech-savvy, educated and affluent than previous generations, Chinese millennials were also raised in a time of relative stability and affluence in the nation. They are largely more willing to take on debt than their parents and grandparents.
Data from Boston Consulting Group and AliResearch projects that consumers younger than age 35 will drive 65 percent of consumption growth in China through 2020. By then, Chinese millennials could account for about 53 percent of total consumption spending.
Of that growth, an estimated 42 percent will from eCommerce spending and 90 percent of that from mobile commerce, which itself is largely being driven by millennial consumers. Currently, millennials account for 45 percent of consumption spending in China.
But as consumer spending rises in China, so too does consumer debt. In 2016, consumer credit is up nearly 300 percent over the past six years. It hit around 23.5 trillion yuan ($3.41 trillion) this past October. This is set to more than double by the end of 2020, to nearly 53 trillion yuan ($7.66 trillion).
Chinese millennials are taking on debt 18.5 times their income on average, significantly higher than their parents’ generation, according to Reuters. And BMI Research shows that while mortgages still comprise a majority of Chinese household debt, credit card and consumer loans have already grown from 4.6 percent of household debt in 2015 to 16 percent in 2016.
Rui Yao, an associate professor of personal finance at the University of Missouri, was quoted as saying by Reuters that, as of now, parents paying off the credit card bills for their millennial children is not unusual in China.
“They don’t see the consequences of not paying. The thinking is, ‘My mom has it covered.’ They’re not prepared for an economic downturn,” Yao said.
And a downturn may be what’s in store for China’s future. As corporate debt also continues to grow in China, some experts have concluded that a “banking crisis” may be headed China’s way. Earlier this summer, the International Monetary Fund (IMF) warned that unchecked growth could lead to economic trouble in the country and beyond.
According to the IMF, state-owned entities account for more than half of corporate debt in China but produce only 22 percent of economic output. According to analysts, the nation is facing a 10-year high of bad corporate loans — at the time valued at more than $614 billion.