Record Consumer Loan Defaults in China Threaten Beijing’s Spending Push

A growing wave of consumer loan defaults across China is undermining government efforts to shift the economy toward domestic spending, as households increasingly struggle under mounting debt burdens.

A Worker’s Story Reflects a Wider Trend

Jack Chen, a 27 year old telecoms maintenance worker in Jiangsu province, had never missed a loan payment until this year. After his employer cut his pay and removed a fuel allowance, he now faces default on roughly 140,000 yuan, close to a full year’s wages, spread across credit cards, online loans, and a car loan. Despite cutting spending down to only food, rent, and gas, he said his debt kept growing regardless.

China’s economy grew at its slowest pace in over three years during the second quarter, according to official data released Wednesday, as weak consumer activity offset strong manufacturing and export performance. This comes even as Beijing has spent years encouraging households to borrow and spend more to rebalance the economy toward domestic demand.

Banks Pull Back Despite Government Pressure

The People’s Bank of China has repeatedly urged commercial lenders to increase lending, but banks have instead tightened their standards to limit further exposure to bad debt. Short-term household loans fell 7% year-on-year last month, reflecting the weak state of borrowing activity.

A Lending Paradox

Banking analysts note that the borrowers most willing to take on new loans tend to be those with weaker credit profiles, while more financially stable consumers are cutting back on credit use, leaving lenders exposed to greater risk.

Bad Debt Reaches Record Levels

Non performing household loans surged more than 20% last year to roughly 2.22 trillion yuan, according to research firm Gavekal Dragonomics, equal to about 1.6% of GDP. The firm estimates this means as many as one in ten Chinese adults fell behind on debt payments in 2025.

Bankers attribute much of the increase to looser lending standards used last year to meet government-driven consumption targets.