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China economy threatened by household debt

Monday, November 14, 2016 - 01:39

China's economy largely showed further signs of steadying in October as expected. But, as Graham Mackay reports, disappointing retail sales growth and fears of U.S. trade frictions under incoming President Donald Trump are increasingly clouding the outlook.

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Picking up discount food just before food markets close for the day. One of the ways a growing number of Chinese are cutting down on spending, as household debt balloons, up more than a hundred percent in the past 10 years. (SOUNDBITE) (English) REUTERS REPORTER, ENGEN THAM SAYING: "10-20 years ago, many of my parents' friends wouldn't really have taken out money - borrowed money from a bank. They would only spend what they had made, and that was the attitude. But now with my generation, the younger generation, are much more willing to borrow money, and buy things with money that is effectively their own." Compared to many developed nations, China's household debt levels are proportionally not too bad. But lower incomes in China mean that things like housing and healthcare become a lot more expensive - forcing higher levels of borrowing. And it's not just families who are feeling the pinch. Some experts say this is a problem that could impact economic growth as a whole, already at a 25-year low. (SOUNDBITE) (English) CMC MARKETS ANALYST, MICHAEL HEWSON, SAYING: "I think going forward it is going to be very, very difficult for China to be able to sustain the sorts of levels growth that we have become accustomed to and that in itself presents risks for the global economy." On top a broad rise in borrowing, some say there's another hidden debt issue lurking under the surface. Down payments on new homes are relatively high in China - and often funded by family members. That may not officially count as a loan on paper, but as one economist tells Reuters - it doesn't mean there's no debt there, or that mum and dad will never foreclose on you, so everything is ok.

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China economy threatened by household debt

Monday, November 14, 2016 - 01:39