Researcher says Chinese credit market remains underdeveloped

August 3, 2010

The Chinese government has made several reforms to its economic policies in recent years. Despite these reforms, a new study shows that Chinese households are not utilizing their credit market to its fullest extent. Rui Yao, a researcher in the department of Personal Financial Planning in the College of Human Environmental Sciences at the University of Missouri, says a recent survey of urban Chinese households shows that the Chinese credit market remains underdeveloped.

"On average, Chinese urban households own very little , which indicates that they are not utilizing debt to level their life-cycle consumption," Yao said. "While it is good that Chinese households aren't overspending, refraining from taking advantage of the credit market is slowing the Chinese economy."

Yao studied the data collected by researchers at Tsinghua University in Beijing, during a 2008 survey of urban Chinese households. The survey showed that only 11 percent of Chinese urban households held any kind of debt, compared to nearly 80 percent of U.S. households. The survey also revealed that while more than 85 percent of Chinese households owned residential properties, less than 10 percent hold a mortgage on their property. This is compared to the U.S., where more than 70 percent of households have a current mortgage on their homes.

The study reveals one possible explanation for the low debt rate in urban China. It shows that Chinese households, on average, display a 50 percent saving rate, meaning they only spend half of their annual after-tax income. Yao attributes this trend to the lack of knowledge and experience on investments and debts.

"Credit and debt are still fairly new concepts to Chinese households," Yao said. "The should play an active and leading role in supporting to the general public. The government has made economic progress through reform in recent years, but it still needs to further develop the by teaching households the benefits of utilizing credit."

Explore further: Older Chinese consumers perceive themselves younger than actual age

More information: This study was published in the Journal of Family and Economic Issues.

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not rated yet Aug 04, 2010
I'm very glad I've paid all my credits and I'm determined to not use any credit anymore, if possible. If some proponent of "the economy" thinks that is bad, that's his problem, not mine.
To be free of liabilities means freedom.

The survey also revealed that while more than 85 percent of Chinese households owned residential properties
I'm very surprised. Doesn't common western wisdom tell us that there's no private property in communist societies?

The government has made economic progress through reform in recent years, but it still needs to further develop the Chinese market by teaching households the benefits of utilizing credit.
"Benefits"? For whom? Debt is beneficial only for the creditor. Debts are the modern form of slavery.
5 / 5 (1) Aug 04, 2010
Debt is bad.
And interest shifts money from those who need it to those who already have it. Good on the Chinese for not being suckers
not rated yet Aug 04, 2010
A sound credit market requires governments that respect and enforce private property rights.
The well developed credit market in the USA enables items to be billed for example. Cell phones are popular all over the world, but in many places, prepaid calling cards must be used as there is no way for people to establish credit and be billed.
Owning a house or other property can be used as collateral to finance significant improvements increasing its value.
Credit is a valuable tool but it can be misused and it does require trust, either personal, which many Chinese seem to favor, or an honest government that protects property rights.
5 / 5 (1) Aug 04, 2010
Credit has been contributing factor to many economic crashes in the US throughout our entire history, particularly the great depression and the recent economic crisis. This is quite typical of neoclassical economics, accuse any nation not already hugely in debt to powerful banking interests that they are "underdeveloped" until they are in the bankers' pocket. Rather than criticizing the Chinese, perhaps we should take a good hard look at our own credit system which keeps crashing.

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