China's 8.54 Million Credit Defaulters Hit Pandemic High Amid Household Debt Crisis Emergency

1% of the Labor Force Defaults on Debt
Household Debt Surges Amid Economic Downturn
Concerns Over Loss of Credibility in the Global Economy

As China's economy struggles to rebound and enters a recession phase even after reopening, the number of debtors unable to repay their debts has surged to an all-time high since the COVID-19 pandemic. The so-called 'credit defaulters' are increasing exponentially, raising concerns that this could accelerate economic stagnation alongside reduced consumption, creating a vicious cycle.

[Image source=Yonhap News]

According to major foreign media on the 3rd (local time), Chinese authorities recently placed 8.54 million debtors who failed to repay their debts on the 'credit defaulter blacklist.' This accounts for about 1% of the total labor force. The number of defaulters has surged compared to early 2020 (5.7 million), when city lockdowns due to the pandemic were at their peak. Those listed face restrictions on economic activities ranging from purchasing airline tickets to making payments via mobile apps. Chinese authorities are also restricting defaulters from using transportation infrastructure such as high-speed rail and cruise ships, as well as government job opportunities. This is effectively a death sentence as economic agents. Notably, China lacks a personal bankruptcy law, so once someone becomes a credit defaulter, the possibility of recovery is virtually nonexistent.

The economic crisis has led companies to reduce wage increases, decreasing consumers' spending power, which analysts believe has contributed to the rise in borrowers. In the second quarter of this year, wages for workers in major cities fell by 8.72% compared to the same period last year, marking the largest decline since 2015. Wage reductions were particularly pronounced in high-income sectors such as finance. CITIC Securities, China's largest securities firm, cut some employees' base salaries by up to 15%. Competitor China International Capital Corporation also reduced senior executives' salaries, including bonuses, by up to 40%.

The number of people unable to repay loans due to unemployment has also increased. Major foreign media reported, "Consumers who lost their jobs and faced cash shortages stopped repaying their loans." After China's youth unemployment rate hit a record high of 21.3% in June, Chinese authorities decided to temporarily suspend the release of unemployment data starting the following month. Bloomberg estimates that youth unemployment has likely increased further since July, as new university graduates enter the job market during the summer.

As the number of debt defaulters rises, banks' non-performing loan ratios have also surged. Industrial and Commercial Bank of China reported a 26% year-on-year increase in non-performing loans due to a rise in credit card holders overdue by more than 90 days. The number of foreclosures on collateral such as houses and cars due to unpaid debts has also increased significantly. According to statistics from China Index Academy, a real estate research firm, a total of 584,000 foreclosures were carried out in China from the beginning of this year through September, representing about a 33% increase compared to the same period last year.

Analysts suggest that the recession, which was previously concentrated in the real estate market, is now spreading throughout households. As of September, household debt accounted for 64% of China's gross domestic product (GDP), nearly doubling over the past decade.

The recession's impact spreading to households raises concerns that China's economic slowdown could be prolonged. Private consumption accounts for 39% of China's GDP, so a slowdown in domestic demand could cause significant problems for the Chinese economy.

There are also concerns that the increase in debt defaulters could damage China's credibility in global markets. Major foreign media pointed out, "If the number of debt defaulters rises, it could become increasingly difficult for China, the world's second-largest economy, to strengthen consumer confidence in global markets." They also noted, "The absence of a personal bankruptcy law means there are few ways to mitigate the social impact of household debt, which is another problem."

This content was produced with the assistance of AI translation services.