China’s US$1 trillion consumer loan bubble is bursting as army of borrowers flinch under pandemic strain

China’s consumer loans are shrinking at an unprecedented pace after a decade of breakneck expansion, a blow to the government’s strategy of relying on spending as a growth engine amid the worst public health crisis in a generation.

The net balance of consumer loans – made up of short-term and credit card loans from banks and online lenders – plunged by a quarter in the first two months of this year to 7.4 trillion yuan (US$1 trillion), according to data published by the People’s Bank of China. Some microlenders are staring at 20 cents on a dollar in bad loans.

The nation’s much-vaunted army of consumers are flinching as the coronavirus outbreak closes shops and causes job losses, hurting demand for new credit and ability to service older ones. A wave of delinquencies will test the resilience of Chinese lenders this year, with the economy expected to be at its weakest since the 1976 Cultural Revolution.

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