Easy credit driving up debt in China, Latest Business News - The New Paper

Easy credit driving up debt in China

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BEIJING When Wu Qi and her husband traded in their Mazda 3 for a more expensive Mercedes Benz sedan, they applied for a 200,000 yuan (S$40,300) bank loan to help pay for it.

They got the money within minutes.

Quick and easy access to credit has encouraged many young Chinese to go into the red to buy cars and apartments they could not otherwise afford.

They are the faces of China's growing addiction to debt, which along with government and corporate borrowing, has raised fears of a looming crisis and prompted Moody's ratings agency to slash China's credit score last week for the first time in nearly 30 years.

"It is very easy - the car company encourages you to borrow the money and enjoy the car," said Ms Wu, 39, adding the couple is also paying off a one million yuan mortgage for a three-bedroom flat in Beijing.

Since Chinese leaders turned on the credit taps in late 2008 to shield the country from the global recession, household borrowing has soared and pushed China's overall debt liabilities above 260 per cent of gross domestic product - compared with about 140 per cent before the crisis hit.

Household debt has become the major driver of China's credit growth, expanding by an average of 19 per cent a year since 2011, said Chen Long, an economist at Gavekal Dragonomics.

If it continues to grow at this pace, household debt would reach roughly 66 trillion yuan by 2020 - more than double the current level