BEIJING — Jack Chen has never missed a loan payment since he first started borrowing money during his internship years, but a growing pile of debt has now put a red mark on his credit record, and banks are turning down his new loan applications.
The 27-year-old telecommunications maintenance worker from Jiangsu province is now staring down roughly 140,000 yuan — about $20,685, or nearly a full year’s pay — in combined debt across credit cards, online loans, and a car loan. His troubles deepened after his employer cut his wages and eliminated a fuel reimbursement benefit this year.
Even after slashing his spending down to just food, rent, and gas, he said, “the debt just kept rolling over and getting bigger.”
Chen’s situation is far from unique in today’s China. A sluggish job market and a prolonged downturn in real estate have pushed consumer loan defaults to unprecedented levels, and analysts warn things could get worse — especially for lower-income borrowers who are sinking further into debt.
This is happening at a time when Beijing has been actively urging its citizens to borrow and spend more, as part of a multi-year effort to shift a struggling, uneven economic recovery toward domestic consumption. Official data released Wednesday showed the Chinese economy grew at its slowest rate in more than three years during the second quarter, as weak consumer activity offset strong manufacturing and export numbers.
China’s central bank, the People’s Bank of China, has repeatedly called on commercial banks to increase lending. But the banks have pushed back, instead raising their lending standards to shield themselves from further bad loans.
Data released Wednesday showed that short-term household loans fell 7% compared to the same period last year — the latest sign of a deeply sluggish credit market.
Neither the People’s Bank of China nor the National Financial Regulatory Administration responded to requests for comment.
The underlying problem, analysts say, is that the people most eager to borrow are often those least able to repay.
“More creditworthy customers are reducing credit card usage,” said Nicholas Zhu, a banking analyst at Moody’s. “Less creditworthy consumers remain active borrowers, leading to higher asset risks for lenders.”
According to research firm Gavekal Dragonomics, the total pool of non-performing household loans grew by more than 20% last year to a record 2.22 trillion yuan, or roughly $324.50 billion. That figure represents about 1.6% of China’s entire economy, and the firm estimates as many as one in ten Chinese adults fell behind on debt payments in 2025.
Banking insiders say the surge in bad loans stems largely from looser credit standards adopted last year to meet government targets for consumer spending.
A loan officer at a mid-sized Chinese bank said the institution revised its risk assessment model this year to place greater emphasis on a borrower’s salary income, after experiencing high default rates on loans that had relied more heavily on property ownership and fixed assets as indicators of creditworthiness.
Banks are also finding ways to manage rising defaults without formally classifying loans as non-performing. Sources say lenders are offering struggling borrowers options such as restructuring, payment extensions, or additional time to sell property.
“We communicate with customers first. If they can’t repay the principal, we ask if they can pay interest, or even partial interest. If so, the loan won’t be classified as non-performing,” said one employee at a joint-stock bank, adding, “Currently, the situation with overdue retail loans is very serious.”
All banking sources spoke on condition of anonymity, as they were not authorized to speak with the media.
Analysts say banks carrying large amounts of unsecured consumer loans face the greatest exposure as defaults continue to rise.
All five of China’s major state-owned banks reported increases in their personal loan default ratios last year. Bank of Communications saw the sharpest jump among them — a rise of 0.5 percentage point, bringing its ratio to 1.58%.
China Merchants Bank, considered the country’s top retail lender, reported a personal loan non-performing ratio of 1.14% in the first quarter of this year, up 0.13 percentage point from a year earlier. Its credit card delinquency rate reached 1.90% in the same period, an increase of 0.15 percentage point.
While those figures may appear relatively small, analysts generally believe actual default levels are higher than what banks officially report.
Despite all this, Beijing has continued to push incentives for borrowing. Earlier this year, authorities tripled the per-borrower subsidy cap to 3,000 yuan and expanded the program to cover credit card installment plans.
Yet not everyone is interested. Susan Wu, a 28-year-old office worker in Guangzhou, said she has repeatedly turned down phone calls from China Merchants Bank in recent weeks urging her to take advantage of the subsidies by converting her card payments to installments. She said she has never paid in installments before and doesn’t want the burden of tracking all her receipts.
TS Lombard economist Minxiong Liao argued that the real barrier to stronger consumer spending isn’t a lack of access to credit — it’s slow income growth, unequal income distribution, and the absence of a robust social safety net that would give people the confidence to spend rather than save.
“Pushing cheaper consumer credit at households whose incomes aren’t growing risks adding to the delinquency problem,” he said.
(Exchange rate: $1 = 6.7682 Chinese yuan)
