REUTERS/Shannon Stapleton
- A record 8.54 million Chinese borrowers are blacklisted for not paying their debts, the FT reported.
- The restrictions on them could weigh on consumer demand and the country's economic growth.
- US consumers are also feeling the squeeze from historic inflation and higher interest rates.
A record 8.5 million Chinese borrowers – about 1% of the country's working-age adults – are blacklisted by their government for failing to pay their debts, the Financial Times reported on Sunday.
The 8.54 million blacklisted borrowers, who are mostly aged between 18 and 59, are barred from buying airplane tickets, making mobile payments using apps like Alipay, working for the government, using toll roads, and engaging in many other activities, the paper reported.
The number of defaulters has jumped by about 50% since the beginning of the pandemic in early 2020, when it stood at 5.7 million, the FT said. Credit-card companies have reported many more bad loans, and home foreclosures have spiked within the past couple of years, the newspaper reported, citing a bank and a consultancy.
The surge in loan defaults speaks to the challenges facing consumers in many countries including the US, and widespread concerns about the global economy. The restrictions placed on the borrowers threaten to weigh on consumer spending in the world's second-largest economy, crimping global growth.
The late-payment epidemic is just the latest economic woe in China, which is navigating aftershocks from the COVID-19 pandemic including a slowdown in growth, stagnant wage gains, a real-estate crisis, and historic levels of youth unemployment.
While the US economy isn't faltering like China's, it faces the prospect of a wave of loan defaults thanks to high inflation and interest rates.
Households saw inflation hit a 40-year high of over 9% last summer, and annualized price growth has remained nearly double the Federal Reserve's 2% target in recent months.
The Fed's response has centered on raising interest rates from nearly zero to over 5% since early 2022, as higher rates encourage saving over spending and make borrowing more costly, which tends to cool demand.
As a result, American households face a double-whammy of steeper living costs and larger monthly payments on debts such as their credit cards, car loans, and mortgages. Other borrowers, such as commercial real-estate developers, face much greater refinancing costs, slumping asset values, and a credit crunch as wary banks pull back from lending.
The difficult situation has led many commentators including "The Big Short" investor Michael Burry and veteran economist David Rosenberg to predict cash-strapped households will have to slow their spending, paving the way for a stock-market downturn and a recession.
However, the American economy has defied those concerns so far, growing an estimated 5.2% on an annualized basis in the third quarter as consumer demand held strong. China appears to be on a far worse trajectory.