The Xinhua News Portal has a headline news story about the increasing levels of debt borne by a higher percentage of Chinese households, with the claim that many urban Chinese are “working on behalf of their creditors.”


“Ten years ago, banks were still trying to inculcate people with the debt consumption concept of ‘using tomorrow’s money to fulfill today’s dreams.’ Today, however, there are already many people who because of the shock of housing debt, automobile debt, refurbishment debt, travel debt and credit-card debt, have sunk to becoming slaves to the money owned on their homes, their cars or their credit cards. Data from the Wuhan branch of the People’s Bank of China indicates that in February of this year, the total amount of personal consumption debt for Wuhan residents was 69.2 billion RMB. If a total city population of 8 million permanent residents is assumed, each resident of Wuhan owes an average 8650 yuan. In 2008, Wuhan’s level of average personal disposable income was 17,000 yuan.”

“On the basis of these calculations, the average debt burden of Wuhan residents is 51%.”

“Several days ago, the China Merchants Bank issued its 2009 report on the wealth and income of China’s urban residents. The report indicate that many individuals and households in China’s urban areas suffer from financial problems, with 30% of households suffering from a debt burden of up to 40%.”

“The report indicates that amongst those surveyed, 33% have a savings rate of less than 10% of their income, living ‘from hand to mouth’; and over 46% of people use more than 60% of their monthly income. 70% of urban residents have only a single income, so that once their work salary is cut-off, they or their households are likely to fall into a state of paralysis due to lack of a capital source. Nearly 30% of those surveyed bear household debt burdens of 40% of their annual income, and this high debt burden has already caused their quality life to suffer a severe decline. The most frightening situation would be for the financial crisis to cause household incomes to diminish, or affect payments of debt, so that penalty rates cause people’s assets to be frozen, or their mortgaged properties to be repossessed.”

“For this reason, the report says that Chinese domestic residents still fail to understand debt consumption, and blindly engage in debt consumption without consideration of their actual income situation. This could affect their future quality of life, as well as cause their household financial situation to deteriorate.”

“Owing 1700 yuan a month on an income of 1500 yuan a month”

“Hankou residents Mr. Yao and his wife are members of the casual workforce, whose combined monthly salary is less than 1500 yuan. They are still raising a child who is in junior high-school.”

“At the start of May this year, Mr. Yao and his wife went to Zhongshan park to enjoy themselves, when they saw a property exhibition which was being held opposite the park. They entered the exhibition with the sole intention of window-shopping, yet did not expect that the sales-girls at the exhibition would vigorously pull them in to look at property.”

“At this point, they were provided with a free ride to look at an apartment building in Panlongcheng, where a sales-girl immediately ‘transfixed’ them with her marketing pitch. The sales-girl recommended that the couple purchase a 3 bedroom home with a total oarea f over 120 square metres. Longing to own a home of their own, Mr. Yao and his wife happily paid over 10,000 yuan to sign the pre-sales contract.”

“Upon returning home and being questioned by family members. Mr. Yao could only tell them that he knew that the total price of the home was 350,000 RMB. He knew nothing about how much he would have to pay on a monthly basis, or for what period of time, or how much the initial installment might be.”

“After this, Mr. Yao began to panic. Early the following morning, he and his family members found the real-estate developer, who calculated that given that Mr. Yao is 50 years of age, he would only be able to obtain a loan for 10 years, with a monthly repayment rate of over 3000 yuan.”

“What could he do? If he decided not to buy the house, it would mean that he would lose the 10,000 yuan deposit. Following Mr. Yao’s repeated requests, the property developer agreed to allow them to switch to a small, two-bedroom property, and the monthly repayment rate fell to 1700 yuan. ”

“This monthly repayment rate caused huge economic hardship for the couple, and compelled them to borrow several hundred yuan from family members and relatives to make payments. Their final decision was to sell the house, on the grounds that they could not meet the monthly repayment schedule.”

“Couple in their 20’s burnt by property speculation.”

“Compared to Mr. Yao, the economic conditions of Xiao Fang, a resident of Wuchang, are far better. He and his wife work in enterprise units, and their combined monthly incomes approach 8000 RMB. Xiao Fang, however, is in the same position as Mr. Yao - on the edge of economic collapse. The reason for this is his decision to purchase three properties simultaneously.”

“Xiao Fang says of his bitter experiences that ‘I originally wanted to speculate in property to earn some money. I didn’t expect that I would be unable to sell the properties, and that the loan pressure would become so great.’ Not long after marrying his wife, Xiao Fang purchased a new property. His parents paid the first installment, while Xiao Fang paid the monthly 2000 yuan repayment amount himself. Because the monthly repayment wasn’t large, the couple set their sights on two other properties, with the aim of engaging in property speculation to earn some money.”

“When the monthly repayments for the three properties were added up, the amount was equal to only 6000 yuan, which Xiao Fang and his wife should have been able to afford. Yet this couple who were born in the 1980’s are accustomed to spending lavishly. How could the remaining 2000 yuan be enough to sustain them each month. For this reason, they rented out the new properties for office use, while the coupled moved in with Xiao Fang’sparents. Although their household expenses were reduced, household conflicts intensified, with Xiao Fang’s wife and Xiao Fang’s parents frequently engaging in petty arguments.”

“Xiao Fang eventually had no choice but to take back the rented property at the start of this year, and return with his wife back to their own small home. They have decided to sell the property in order not to be slaves to their repayments. The property has already been featured on a second-hand property trading website for over half a year now, and has still not been sold.”

“Credit-card slavery”

“Xiao Liu, whose home is located in Wuchang’s Dongting, was unable to obtain proper work after graduation, and had a monthly income of 1000 yuan. Although this is not even enough for transportation or eating in restaurants, Xiao Liu would still hang out regularly with his friends. He frequently bought new mobile phones, and would often hang out in bars or restaurants. It turns out that all these ‘casual expenses’ were paid for with overdrafts on his credit card.”

“In October of last year, a credit card bill was sent to his home. At first, Xiao Liu would simply tear up the bill so that his parents wouldn’t see it. Eventually, however, the bank’s debt collection agent called up the home, exposing everything.”

“Upon seeing the bill, the hair on the head of Xiao liu’s father turned white, since his household has only a modest amount of income.”

“Xiao Liu’s father enabled Xiao Liu’s to pay off 3 of the credit-card bills. Yet the total overdraft amount was 15,000 yuan, while their household’s savings were only 5000 yuan. Because of the 10,000 yuan which was still owed, Xiao Liu’s elderly parents were unable to sleep for several days. In order to avoid the high rate of penalty interest, Xiao Liu’s father had no choice but to borrow 10,000 yuan from relatives, in order to repay the bank.”

“At present, Xiao Liu’s father still works every day in a neighbourhood restsaurant as a cook, to earn money for Xiao Liu to repay his debts. In order to prevent Xiao Liu from continuing to spend on credit, he has confiscated Xiao Liu’s identification card, and strictly ordered that he return home before 6 o’clock each evening.”

“Banks all employ the same gleeful sales pitch”

“Since the start of this year, banks have all been trying to stimulate credit card consumption, with credit card discount activities. This has created a large number of ‘credit-card slaves’, for whom the monthly credit card bill is a source of great anguish.”

“A Ms. Wang, who is the receptionist for a company, was tempted by the multiple credit-card dealson offer, and successfully applied for credit cards from three different banks. Whenever she saw an attractive neckless or a fetching skirt, she would buy it on credit witout hesitating. Yet by the end of the month she saw the credit bill and discovered that she owed over 5000 yuan. Ms. Wang’s monthly income, however, was only 2000 yuan. The best thing for her to do was to pay off the lowest amount.

“Not longer afterwards, she was tempted by another credit-card discount. Soon afterwards, she had spent over 4000 yuan. The debt amount became larger and larger like a rolling snowball. She says that ‘Now when I see a credit-card bill, I completely lack the courage to open it.’”