Current economic pressures in China are gradually shifting onto ordinary households. The ongoing slump in the real estate market, the difficulties enterprises are facing, and a weakening outlook for employment and income are putting increased financial strain on residents concerning their mortgages, credit cards, and consumer loans.
According to a report by Bloomberg dated June 18, 2026, Gavekal Dragonomics estimated that by 2025, non-performing loans among Chinese households could reach at least 22.2 trillion yuan, reflecting a year-on-year increase of 21%. This situation suggests that as many as 100 million consumers may find themselves grappling with the pressure of repaying personal debt.
While this estimate does not imply that all of these households have defaulted, it clearly highlights the accumulating financial risks that are being faced by families across China.
A survey conducted by the Center for Business Big Data Research at Peking University revealed on October 30 that in the third quarter, average quarterly operating income for small and micro-enterprises was 93,000 yuan, which marks a significant decline of 19.5% year-on-year. The average net profit margin stood at merely 4.2%, with cash flow able to sustain operations for an average of only 2.8 months; alarmingly, 11.7% of these operators reported cash flow issues that were no longer sufficient to maintain normal operations.
These statistics reveal a lack of demand in the end markets, which is placing immense pressure on the ability of small and micro businesses to operate effectively.
With declining revenues, small enterprises may be forced to curtail their hiring practices, lower wages, or even lay off staff. Consequently, when household incomes are affected, consumer spending tends to decline further, creating a vicious cycle of business distress and increasing household debt.
When household income is stable, mortgages, credit cards, and consumer loans can facilitate immediate consumption needs. However, under circumstances where income expectations diminish, the repayment of debts becomes prioritized over expenses for travel, dining, entertainment, and other non-essential consumption.
The issue lies in the fact that while the Chinese government continuously emphasizes the need to expand domestic demand, it simultaneously fails to effectively improve household income expectations or social security measures. When families are preoccupied with repaying debts, simply increasing consumer loans may only shift today’s consumption into tomorrow’s financial stress.
Housing is one of the most significant assets for families in China. In the past, rising property prices allowed residents to create wealth through property appreciation, thereby driving other forms of consumption.
However, as the real estate market continues to adjust, many families are struggling with the dilemma of declining property values without a corresponding decrease in mortgage principal. For instance, if a home originally valued at 3 million yuan drops to 2.2 million yuan while still owing 1.5 million yuan on the mortgage, the household’s net assets will dramatically shrink.
Such scenarios compel residents to lean towards savings and debt repayment rather than increasing consumption. The real estate policies have for years placed excessive reliance on land finance and credit expansion, ultimately leaving the costs to be borne collectively by businesses, local governments, and regular households.
As reported by Reuters on January 7, 2026, China’s financial regulatory authorities have extended the pilot program for batch transfers of personal non-performing loans until the end of 2026. In the first half of 2025, the scale of related personal non-performing loan transfers reached 107.6 billion yuan, which represents an over 100% year-on-year increase. By the end of June 2025, the personal consumer loan non-performing rate for the Industrial and Commercial Bank of China had risen to 2.51%, while the overdue credit card rate stood at 3.75%.
The sale of non-performing debts by banks can enhance their asset management capacities; however, the transfer of debt does not eliminate the repayment responsibility of the borrower. Without a stable household income, even with multiple transfers of debt, it is impossible to magically generate repayment ability.
The issue of household debt in China is not merely a family financial management problem; it is closely tied to the long-term patterns of economic development. For years, the Chinese government has channeled considerable resources into real estate, infrastructure, local investments, and industrial expansion without bringing a simultaneous improvement in residents’ incomes or social security.
The International Monetary Fund (IMF)’s 2026 consultation report on China pointed out that strengthening healthcare, education, elderly care, and rural social security can help reduce households’ precautionary savings and boost consumer spending.
This indicates that the deficiency in consumption in China is not just an unwillingness to spend among residents, but also a fundamental lack of sufficient security for ordinary families concerning their futures.
If the government demands that consumers increase their spending without addressing income distribution, healthcare burdens, pension security, and employment instability, the efficacy of such policies is naturally limited.
Cities like Shenzhen and Xiamen have begun to explore individual bankruptcy and debt relief systems. According to the Supreme Court’s 2026 work report, Shenzhen has permitted individuals in bankruptcy liquidation cases to legally discharge remaining debts after completing a four-year observation period.
While this represents an important exploration in debt governance, it cannot yet be regarded as a nationwide standardized personal bankruptcy system.
For families that are honest yet unable to repay their debts, it is essential to establish transparent and fair mechanisms for debt restructuring and relief, rather than allowing pressure from debt collections to be the only solution.
Presently, China’s economy is faced with a precarious transmission chain: a decline in real estate leads to a shrinkage of household assets; residents reduce consumption, resulting in lower income for small and micro businesses; these businesses experience operational difficulties, which further pressures employment and wages; and families’ debt repayment abilities weaken, contributing to increasing non-performing loans at banks.
This situation reflects characteristics similar to what economists describe as a balance sheet recession, drawing parallels to Japan’s economic decline that spanned three decades.
The real concern remains whether the Chinese Communist Party can shift away from its past emphasis on investment and credit expansion as a primary growth model.
In the future, greater emphasis should be placed on enhancing household incomes, improving social security, reducing healthcare and pension burdens, and fostering a stable, equitable, and predictable operating environment for private enterprises.
Official data from the Chinese government indicates that in the first three quarters of 2026, nominal per capita disposable income grew by 5.3%, while per capita consumption expenditure only rose by 3.6%. When adjusted for inflation, the actual growth is a mere 2.7%. This widening gap between income and consumption growth merits ongoing scrutiny.
The true challenge facing China’s economy is not simply a lack of funds, but whether households and businesses can restore stable income sources.
Long-standing governmental reliance on credit expansion to drive growth, without adequately ensuring the financial security of residents, may ultimately lead to a scenario where the economy continues to grow in aggregate while ordinary families refrain from spending.
The Chinese authorities need to confront not just the question of how to stimulate consumption but also why past economic policies have failed to allow more ordinary households to benefit from the fruits of economic development.
If this issue remains unresolved, the pressure of household debt could prove to be a persistent obstacle on China’s road to economic recovery.