Zhong Weiyi, who owns an auto dealership just outside the sprawling western city of Chengdu, China, isn’t feeling very confident about the country’s economy.
This trend of deleveraging is taking money away from the productive area of consuming goods and services and reallocating it to servicing debts, which are mainly in the form of mortgages and credit card bills. Chinese have reasons to save beyond the falling value of their homes, which are their core nest eggs. China’s once revered pension system’s future is becoming muddier each year. The country’s rapidly aging population soon will not be able to be supported by a dwindling number of working-age contributors to the social security system, and the pension system is already feeling the effects.
For instance, China’s $2.9 trillion trust industry is in increasing trouble. Partially as a result of increasing government regulation, the massive sector has been restructured six times since it formed decades ago and now faces losses that may amount to $38 billion, Goldman Sachs analysts said this week.
One profligate borrower, Angel Wu, a 27-year-old who has recently returned to Shanghai after completing a masters degree in the U.K, said she was representative of her friend circle. While she has struggled to find a job—the unemployment rate in her age group is in the double digits—she has been busy buying consumer goods on easy credit, with a tap of her phone.