Key facts
- Chinese households are deleveraging at the fastest pace in years, with debt-to-GDP falling to 59.4% at the end of 2025.
- Household debt saw its first quarterly declines since 1995 in the latter half of 2025.
- Falling home prices and slower income growth are key drivers of this deleveraging.
- China's overall debt-to-GDP ratio rose to a high 302.4% in 2025.
- Retail sales have declined, contributing to a reliance on exports, which saw a record trade surplus in 2025.
- The property sector remains a drag on growth, with no strong recovery expected in 2026.
Chinese households are cutting back on debt at the fastest pace in years, a trend that could hinder Beijing's efforts to boost domestic consumption and sustain economic growth. The household debt-to-GDP ratio fell to 59.4% by the end of 2025, with household debt expanding by a mere 0.5% year-on-year, marking a historic low. This deleveraging is attributed to falling home prices and slower income growth, exacerbated by a protracted property slump that began in 2021.
The decline in consumer spending underscores China's growing reliance on exports to maintain economic momentum. The country recorded a record trade surplus exceeding US$1 trillion in 2025, despite ongoing trade tensions and tariffs imposed by the United States. Other nations are also considering trade restrictions on Chinese goods.
The property sector, a significant component of household wealth, continues to contract, creating a negative wealth effect that dampens consumer confidence. The International Monetary Fund warns that a prolonged resolution of the property crisis could lead to a weaker economic recovery, drawing parallels to Japan's 'lost decades'.
While central and local authorities have increased their debt levels to stimulate the economy, the overall debt-to-GDP ratio, excluding the financial sector, has risen to a relatively high 302.4%. Beijing is investing in areas like research and development, artificial intelligence, and renewables to support future growth, but the path to a strong domestic demand recovery remains challenging.