China's Consumer Spending Faces Challenges Amid Household Deleveraging

Chinese households have significantly accelerated their deleveraging efforts, reducing debt relative to gross domestic product (GDP) at an unprecedented pace. According to data from the National Institution for Finance and Development (NIFD), the household debt-to-GDP ratio decreased by 2 percentage points, from 61.4% in 2024 to 59.4% by the end of 2025. This decline marks a historic low, with household sector debt expanding by only 0.5% year-on-year in 2025. Notably, the size of household debt experienced its first quarterly declines since 1995, dropping by 0.1% in the third quarter and 0.8% in the fourth quarter.

China’s consumer spending push faces major challenge – debt-averse households

The shift towards deleveraging comes amid a backdrop of soft retail sales and weak consumer confidence, which have placed pressure on the Chinese economy. The government is grappling with a protracted property slump, high youth unemployment, uncertainties stemming from trade wars, and a rapidly ageing population. While household deleveraging can enhance financial stability, it poses a risk to consumer spending, which is crucial for sustaining growth in the world's second-largest economy. In contrast, both central and local authorities have seen increases in their debt-to-GDP ratios, rising by 3.7 and 3.8 percentage points, respectively, as the government adopts a more proactive fiscal policy.

China’s consumer spending push faces major challenge – debt-averse households

The overall debt-to-GDP ratio for China, excluding the financial sector, rose by 11.7 percentage points to 302.4%, a level deemed relatively high by international standards. The NIFD report, led by Zhang Xiaojing, attributes the household deleveraging trend to falling home prices and slower income growth, which have contributed to a cautious approach among consumers regarding debt accumulation.

China’s consumer spending push faces major challenge – debt-averse households

Critics argue that the focus on deleveraging may hinder economic recovery efforts. The reduction in consumer spending could exacerbate existing economic challenges, leading to a cycle of reduced demand and further economic contraction. Some analysts warn that without a balance between deleveraging and stimulating consumer confidence, the Chinese economy may struggle to regain momentum.

China’s consumer spending push faces major challenge – debt-averse households

Officials have acknowledged the need to boost domestic demand to counteract the effects of deleveraging. The government is exploring various measures to stimulate consumer spending while maintaining financial stability. However, the effectiveness of these measures remains to be seen, as the underlying issues affecting consumer confidence persist.

China’s consumer spending push faces major challenge – debt-averse households

While the NIFD report highlights the significant decline in household debt, other sources may present differing views on the overall economic impact of this trend. There is a need for further investigation into how these changes will affect various sectors of the economy and whether the government's fiscal policies will be sufficient to stimulate consumer spending.

China’s consumer spending push faces major challenge – debt-averse households

• “Yet while household deleveraging can strengthen financial stability, it can also restrain consumer spending.” — Zhang Xiaojing, Director, Institute of Finance and Banking, Chinese Academy of Social Sciences.

China’s consumer spending push faces major challenge – debt-averse households

• “relatively high level by international standards” — NIFD Report.

China’s consumer spending push faces major challenge – debt-averse households