China is facing a severe economic crisis as a record number of borrowers face defaults in echoes of the 2008 global financial crash.
Defaults by Chinese borrowers have surged to an unprecedented level since the Covid pandemic as the country faces huge economic challenges.
Official records now show a staggering 8.54 million people in China, primarily between the ages of 18 and 59, are officially blacklisted for missing payments on various financial obligations, ranging from home mortgages to business loans.
This figure has sharply risen from 5.7 million defaulters in early 2020, as lockdowns and economic restrictions stemming from the pandemic significantly impacted economic growth and household incomes.
The surge in defaults, equivalent to about one per cent of working-age Chinese adults, poses a considerable risk to the world economy.
Making the situation worse for individuals, China also does not have any personal bankruptcy laws, intensifying the financial and social repercussions of escalating debt.
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Under Chinese law, blacklisted defaulters face restrictions on numerous economic activities, including purchasing plane tickets and making payments through popular mobile apps like Alipay and WeChat Pay.
The economic strain is also visible in the surge of household debt, which almost doubled over the past decade to 64 percent of the Gross Domestic Product (GDP) in September. Wage growth has either stalled or turned negative amid the economic downturn, making financial obligations increasingly challenging for many Chinese consumers.
The economic challenges extend to the job market, with youth unemployment reaching a record 21.3 percent in June. Authorities have even stopped reporting this data.
Financial institutions are also feeling the pressure, with China Merchants Bank reporting a 26 percent increase in bad loans from credit card payments that were 90 days overdue in 2022 compared to the previous year.
As the number of defaults rises, legal experts have proposed introducing personal bankruptcy laws to provide relief for individual insolvencies.
However, the lack of transparency regarding personal finances means implementing such measures is near impossible. Government officials and other interest groups will block these policies, fearing the exposure of corruption.
Adding to China’s challenges, a recent pneumonia outbreak further strains the nation. The Department of Health recorded 182,721 cases as of November 11, surpassing the 158,307 cases reported from January to October last year.
This economic crisis also unfolds against a backdrop of escalating tensions in the region, with Taiwan set to elect a new President, further complicating geopolitical dynamics in the Asia-Pacific region.
