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

Chinese households have accelerated deleveraging – cutting debt relative to gross domestic product – at the fastest pace in years, a shift that could weigh on the consumer spending that Beijing needs to sustain growth in the world’s second-largest economy.The household debt-to-GDP ratio fell by 2 percentage points, from 61.4 per cent in 2024 to 59.4 per cent at the end of 2025, according to data released on Monday by the National Institution for Finance and Development (NIFD), a Beijing-based think tank.Household sector debt expanded by just 0.5 per cent year on year in 2025, marking a historic low. The size of the debt dropped by 0.1 per cent in the third quarter and by 0.8 per cent in the fourth quarter – the first quarterly declines since 1995.After soft retail sales and weak consumer confidence weighed on the economy last year, Beijing faces mounting pressure to boost domestic demand amid a protracted property slump, high youth unemployment, trade war uncertainties and a rapidly ageing population. Yet while household deleveraging can strengthen financial stability, it can also restrain consumer spending.The household sector was the only one to report a fall in the debt-to-GDP ratio in 2025. Central and local authorities increased their debt-to-GDP ratios by 3.7 percentage points and 3.8 percentage points, respectively, as the government adopted a more proactive fiscal policy. Debt in non-financial firms also rose by 6.2 percentage points last year.The nation’s overall debt-to-GDP ratio, excluding the financial sector, rose by 11.7 percentage points to 302.4 per cent – a “relatively high level by international standards”, according to the NIFD report.The research team, led by Zhang Xiaojing, director of the Institute of Finance and Banking under the Chinese Academy of Social Sciences, attributed household deleveraging to falling home prices and slower income growth.