"It's Been Crazy": Meet The Source Of China's Next Debt Crisis: Millennials With Credit Cards

Last October, when looking at the breathtaking growth in Chinese new debt, we pointed out the one segment where the danger was most acute: household debt, which in mid 2017 had surged by a whopping 43% in one year even as the growth across other debt categories was relatively stable.

In fact, as the next chart shows, Chinese households are on the verge of surpassing the nation's corporations as the biggest source of credit demand.

But what was behind the surge in household loan demand? As it turns out, it was merely the reality of China's surging prices coupled with stagnant incomes, forcing countless, mostly young Chinese residents to do what Americans have been doing for decades: charge it.

In a report on China's brand new infatuation with consumer credit, the FT highlights the case of Tom Wang, a graduate from a middle-ranked Chinese university, who struggling to find well-paid work after arriving in Shanghai turned to the only possible source to fund his spending: credit cards.

“Using credit cards did not feel like spending money, and the debt grew and grew,” said the 26-year-old, whose starting salary of Rmb3,000 ($470) a month could not cover rent and the consumption habits he called “irrational”, such as buying the latest smartphone.

To cover repayments and keep spending, Wang took on more debt,  borrowing Rmb60,000 over four credit cards , before turning to online lenders for a further Rmb70,000. The problem is that interest payments quickly “snowballed” to an untenable Rmb1,500 a month, eating up half of his entire pretax income.

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