Since March, Beijing has urged banks to bolster low‑interest consumer lending to ignite household spending as a countermeasure to ongoing trade tensions, yet growth remains tepid and debt failures are mounting.
Despite launching sub‑3 percent personal loans to spur demand, banks have reversed course amid shrinking margins and soaring bad debt, with 74 billion yuan in non‑performing loans (NPLs) sold in Q1 – a year‑on‑year jump of 190.5 percent, 70 percent of which were personal loans. Household borrowing rose just 6.1 percent in Q1, down from 8.7 percent a year earlier, revealing weak consumer appetite even in a low‑rate environment .
At state‑owned giants like ICBC, consumer NPLs climbed to 2.39 percent by end‑2024 from 1.34 percent, while smaller regional banks fared worse, some exceeding 12 percent. Strained incomes, wage cuts across industries, and tariff‑induced job fears have dampened household willingness to borrow. As one bank branch head told Reuters: “It’s very difficult to find borrowers for consumer loans… banks are caught between meeting lending targets and controlling bad loans”.
Though June loan figures show strong corporate and public funding, new yuan loans nearing 1.8 trillion yuan, household lending remains sluggish, illustrating a divergence between consumer and other credit growth. Policymakers face mounting pressure: revenue growth is soft, domestic demand remains fragile, and trade‑war uncertainties persist .
For regulators, relying solely on credit expansion risks a debt‑driven “transitory” boost without sustainable consumption growth. Experts argue that strengthening incomes through wage support, welfare spending, and job security measures would better underpin long‑term recovery.
Beijing must now balance its directive to boost consumer lending with ensuring financial stability. If such tensions continue, expect more rate hikes by banks, tightened lending conditions, or targeted relief for struggling households. Successfully transforming policy into real consumption growth hinges on whether the government shifts focus from borrowing to boosting earnings and confidence at the household level.
