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One Big Difference Between Chinese and American Households: Debt - Forbes


P ER S O NA L F I NA NC E | 6/24/2010 @ 12:08PM | 31,845 vie ws

One Big Difference Between
Chinese and American
Households: Debt
Robert O. Weagley, C ontributor

In the fall of 2009, I was invited to Beijing by Tsinghua University to present a
keynote address at the first China Consumer Finance Forum. It was a
personal honor and it presented an opportunity for this Missouri boy to meet
some Chinese leaders in the field of finance. One of the nicest by-products of
the trip was to gain access to the first iteration of the Survey of Chinese
Consumer Finances, collected by Tsinghua University and funded by Citibank
(China) Co., Ltd. The data provide insights into their culture and, upon
reflection, clues about our own.
The data were collected from slightly more than 2,000 households residing in
fifteen cities within China, all Class-One and Class-Two cities. The data
represent the urban Chinese, having greater wealth and income than their
rural counterparts. In this group, 73% were married, compared with 59% in
the Unites States. Fifty-five percent of the Chinese stopped school with a
high-school education or less, while in the United States 46% stopped with a
high-school education or less. The average annual household income in
China, converted to dollars, was $10,220, compared with $84,300 in the
United States (the median US income is $47,300.) One of the few similarities
was average household assets: in both China and the U.S., the average
family’s assets were about eight times its average income.
At face value, the similarities between China and the United States, with
respect to relative levels of assets to income, as well as demographics, are
remarkable. The level of debt to average income, however, is not. The
average US household debt is 136% of household income, compared to 17%
for the Chinese. Moreover, if we include federal borrowing, the United States
number increases an additional $109,792 per household, to $224,303 per
household or 266% of average household income.
We need to ask the question, Is this sustainable? And where is all of this debt
coming from?
For starters, we found that while 85% of Chinese households surveyed owned
a home, only 11% carried a mortgage on that property. In the United States


Roughly 12% of the Chinese sample owned a car with only 0. In China.8/27/13 One Big Difference Between Chinese and American Households: Debt . the lack of Social Security. however. In addition. April of 2010 saw a household savings rate of 3. and it has remained over 3% since the fourth quarter of 2008. This article is available online at: http://www. Admittedly. Some of this is a result of Chinese employer home purchase plans for employees. anywhere from 73% to 91% of new car purchases involve financing. Westerners should be grateful for Chinese savings. the lack of government provided medical care. In the United States. credit use is decreasing and savings rates are up. in fact.6%. a member of the Bank of China confided to me that increasing the borrowing of the younger Chinese is a goal of the Chinese government to enable them “to not be dependent on the west to support our growth”. provides the greatest subsidy to those with the largest mortgage and. The good news is that. however. consumer credit is necessary to smooth our consumption stream – shifting income from high periods to periods where it is relatively low. in an effort to provide housing while limiting indebtedness. or a culturally bound ethic in improving the future for their family. in the form of a mortgage or a home-equity loan.Forbes 69% were homeowners in 2007. typically.7% of the population (6% of the automobile purchasers) borrowing money to purchase a car. Revolving credit decreased at an annual rate of 12% in March and non-revolving credit decreased at an annual rate of 7%. while 47% of all US families have installment loans and 46% carry a credit card 2/2 . in the United States. mortgage debt is encouraged through a subsidy in our tax code that. as it is used to loan money to the United States.forbes. Less than 1% of urban Chinese use consumer loans to purchase consumer goods. thus allowing us to continue down the road our nation has chosen. with 70% of them carrying some debt on the property. In fact.1% in March. Whatever it is. households save between 25% to 50% of their income. the answers range from the existence of an excess of males to females. In the United www. With respect to the question of why China’s saving rate is so high. compared to 3.forbes. the highest incomes.