New Delhi [India]: China's efforts to revive consumer spending are facing a growing challenge as a record number of households struggle to repay their loans, raising concerns about the effectiveness of Beijing's strategy to boost domestic demand through easier access to credit.
According to research firm Gavekal Dragonomics, China's stock of household non-performing loans surged more than 20% in 2025 to a record 2.22 trillion yuan, equivalent to around 1.6% of the country's gross domestic product (GDP).
The firm estimates that one in ten Chinese adults fell behind on debt repayments last year, underscoring the mounting financial pressure on households, reported by global news platform Wion.
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The increase in loan defaults comes against the backdrop of weak income growth, a sluggish labour market and a prolonged property downturn that continues to weigh on consumer confidence. These factors have left many families struggling to manage rising debt burdens, even as policymakers encourage borrowing to stimulate spending.
Recent data also points to weakening demand for new credit. Short-term household loans fell 7% year-on-year in June, suggesting consumers remain reluctant to take on additional debt despite a series of government measures aimed at supporting consumption.
The rise in bad loans is prompting banks to become more cautious. Financial institutions are tightening lending standards by placing greater emphasis on borrowers' income levels before approving loans. Some lenders are also restructuring existing loans or extending repayment periods to prevent them from being classified as non-performing.
The strain is becoming increasingly visible across China's banking sector.
Bank of Communications reported its non-performing personal loan ratio climbed by 0.5 percentage points to 1.58% in 2025, marking the largest increase among China's five biggest state-owned banks.
Meanwhile, China Merchants Bank reported a non-performing personal loan ratio of 1.14% in the first quarter of 2026. Its credit card delinquency ratio also rose to 1.9%, highlighting growing repayment difficulties among consumers.
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While Beijing continues to roll out policies aimed at making credit cheaper and more accessible, economists argue that easier borrowing alone is unlikely to revive consumer spending.
They say the underlying issue is not access to loans but the financial confidence of households. Without stronger wage growth, stable employment and greater income security, consumers are expected to remain cautious about spending and borrowing.
For millions of Chinese families, the situation reflects a broader economic reality: when incomes fail to keep pace with rising living costs, borrowing can shift from being a tool for consumption to a necessity for meeting everyday expenses—making the country's path to a consumption-led recovery increasingly difficult.
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