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Borrowing Behavior in China

by Raksha Arora

Consumer debt barely existed in China in the 1990s. Today, the scenario is quite different as the government -- fearful of a property market bubble -- tries to increase mortgage rates and consumer banks rush to develop a suite of credit products aimed at eager borrowers.

At the national level, 14% of Chinese consumers say they have applied for personal commercial loans, according to the new Gallup Poll of China. There is a clear divergence between the rural and urban populations, with rural Chinese twice as likely as urban Chinese to have applied for a loan.

Why Do Chinese Take Loans?

Gallup asked Chinese who had applied for personal loans why they applied for the loans; 42% say it was for starting or operating businesses. The other major driver of consumer debt is homeownership or property market speculation -- 19% of Chinese loan applicants have applied for a loan to buy a house.

Again, borrowing behavior differs between urban China and rural China. While borrowing funds to invest in a business is common in both sectors (43% of urban loan seekers and 42% of rural loan seekers report applying for loans for business purposes), urban Chinese are much more likely than rural Chinese to apply for house loans. More than half of urban Chinese who have applied for a loan applied for a house loan, while only 8% of rural loan applicants have done so.

Future Borrowing Intentions

Looking at future borrowing intentions, 19% of Chinese say they plan to apply for a personal commercial loan in the future, and the corresponding number in big cities is much higher. In Beijing, 28% of consumers are thinking of taking a loan and 32% of those in Shanghai are considering the same.

What do Chinese expect to take out loans for in the future? The factors motivating future borrowing plans are somewhat different from those who have applied for loans. Home loans and business loans feature prominently among future borrowing intentions, but consumer borrowing intentions also suggest education and auto loans will become considerably more common in the years to come.

In the 10 largest Chinese cities, 76% of respondents who will apply for a loan in the future will probably take a loan to buy a house. Auto loans are set to rise in urban China: 28% of urban respondents who will apply for loans express an interest in taking auto loans, as do 36% in the top 10 cities and 43% in the top three cities.

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