March 27, 2018 / 8:16 AM / 8 months ago

China's household finances look stretched versus most emerging markets - Fitch

BEIJING, March 27 (Reuters) - China’s household finances look more stretched than those in most emerging markets, though the level of household debt remains less than that in most developed economies, Fitch Ratings said in a report on Tuesday.

China’s household debt-to-disposable income ratio, a gauge of indebtedness, has jumped 9 percentage points every year since 2015, driven by mortgages and other consumer debts.

If left unchecked, the ratio could hit 100 percent by 2020 versus 82 percent at end-2017, Fitch said.

That would put China on par with the United States and Japan, whose household debt ratios are estimated to be at 105 percent and 99 percent, respectively.

While supportive for spending in the short-run, rising household debt could eventually weigh on domestic demand, undermining the government’s efforts to rebalance the economy towards consumption, Fitch added.

In the past month, China’s top finance officials have renewed their call to cut household debt levels, which Fitch said became the single biggest component of new credit in China’s banking system for the first time in 2017.

The new People’s Bank of China governor, Yi Gang, cautioned on Sunday that household debt has been rising at a relatively fast clip.

Guo Shuqing, head of the country’s newly formed banking and insurance watchdog, recently said China needs to reduce the level of household debt.

In the past two years, residential mortgages, which make up the bulk of household loans, have surged in a hugely speculative market.

Meanwhile, financial regulators have largely focused their attention on curbing risks from a corporate debt build-up and off-balance sheet activities, such as sales of non-guaranteed wealth management products.

Continued rapid expansion in household debt may create medium- to long-term risks, Fitch warned, and rating action could result if risks continue to build in the banking system without requisite increases in institutions’ loss-absorption capacity.

China’s red-hot residential property market — a key driver of economic growth — has slowed since the rollout of cooling measures in late 2016.

Home prices in top-tier cities fell slightly last month after steadying in January, though the majority of the 70 cities surveyed by the National Bureau of Statistics still saw monthly price gains.

In line with that, new household loans stood at 275.1 billion yuan ($44 billion) last month, the lowest since February 2016, when new household loans actually contracted. The central bank is due to release its March lending data around mid-April. ($1 = 6.2530 Chinese yuan renminbi) (Reporting by Ryan Woo Additional reporting by Zhang Min; Editing by Kim Coghill)

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