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Thoughts on “household deleveraging”
The speed of household leverage growth has picked up visibly in recent years. Outstanding household consumer loans (incl. mortgage) grew by 66% in the past 2 years, while their share in GDP climbed to 38% in 2017 from 28% in 2015.
Furthermore, while the growth of mortgage financing has been effectively reined in since 4Q2016, the expansion of non-mortgage consumer loans has accelerated sharply, indicating a potential deterioration of credit quality. Net new issuance of mortgage loans declined to 4 trillion in 2017 from 4.8 trillion in 2016, while net new issuance of bank-backed non-mortgage consumer loans jumped to 2.5 trillion last year from 1.3 trillion in 2016 (not including P2P and internet-based consumer credit). Apart from the consumer loans issued via the bank channel, internet-based consumer credit also mushroomed since 2015.
Nevertheless, it is worth reiterating that the gross level of the Chinese household leverage is not high by international standard. On the net basis, Chinese household sector is in “net cash” position. From a macro point of view, the balance sheet of the Chinese household sector remains solid and highly resilient. Furthermore, on the macro level, the current household mortgage leverage ratio and debt repayment burden remains highly manageable.
We expect the incremental tightening towards household leverage to be more focused on non-mortgage consumer lending, especially those with short-duration, internet-based, and/or without collateral. Meanwhile, we expect continued window-guidance to keep new mortgage loan issuance roughly on-par with last year’s level.
While the overall macro impact of slower consumer loan growth may be limited, sectors that have enjoyed considerable incremental growth propelled by consumer credit may witness more visible, yet temporary slowdown in sales growth. Over the long run, tying up the regulatory “loose ends” for consumer credit issuance will go a long way in ensuring higher quality and more sustainable growth of consumer financing in China.