China's Household Debt Hits Record High Again Despite Sharp Drop in Economic Growth Rate Due to COVID-19

Bank of Korea 'Overseas Economic Focus'

[Image source=EPA Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] Although the economic growth of China has been stalled due to the impact of the novel coronavirus infection (COVID-19), household debt continues to remain at an all-time high.

On the 24th, the Bank of Korea cited data from the National Bureau of Statistics of China in its 'Overseas Economic Focus,' revealing that China's household debt in the first quarter reached 56.5 trillion yuan (approximately 9800 trillion won), marking a 13.7% increase compared to the same period last year. China's economic growth rate in the first quarter sharply declined by 6.8% year-on-year, and real disposable income decreased by 3.9%.

In particular, mortgage loans increased by 15.9%, leading the rise in household debt. Mortgages account for 55.1% of China's household debt as of March. Among China's household assets, housing assets make up the majority (59.1%), which is even higher than that of the United States (28.5%).

The Bank of Korea analyzed that the continued significant increase in China's mortgage loans is due to rising housing prices and accommodative monetary policy.

Despite a 24.7% decrease in the transaction volume of housing and commercial buildings as of March, housing prices actually rose. Especially after the easing of monetary policy, some cities experienced cases that appeared to be speculative transactions. The People's Bank of China, the country's central bank, lowered the one-year Loan Prime Rate (LPR), which serves as the benchmark interest rate, twice this year?in February and April?by 0.1 percentage points and 0.2 percentage points, respectively.

The Bank of Korea forecasted, "Whether Chinese authorities will ease real estate regulations to stimulate domestic demand and the extent to which liquidity from monetary easing flows into the real estate market will be key factors determining the direction of household debt."

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