Consumer loans are going bad

CHINA FINANCIAL - Report 20 May 2025 by Michael Pettis

Special points to highlight in this report:

- The latest data releases again reinforce the story we’ve been telling all year and much of last year: Beijing may talk a lot about the urgent need to boost domestic demand, and it may make weekly or even daily announcements about how it proposes to do so, but this is much harder than policymakers and advisors have imagined.

- As part of this process, for example, a few months ago the bank regulators told commercial banks to expand their consumer lending, but (perhaps to no one’s surprise) we are already seeing the limits of that expansion in the form of worsening banking balance sheets.

- Meanwhile Beijing continues to externalize the cost of its contracting property sector by expanding manufacturing and exporting the excess capacity.

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