A Global Consumer Default Wave Is Just Getting Started
“These issues in China are a preview of what we should expect throughout the world”
(finance.yahoo) – (Like millions of people around the world, Zhang Chunzi borrowed money she thought she’d be able to repay before the coronavirus changed everything.
Now laid off from her job at an apparel exporter in Hangzhou — one of China’s most prosperous cities — the 23-year-old is missing payments on 12,000 yuan ($1,700) of debt from her credit card and an online lending platform operated by Jack Ma’s Ant Financial. “I’m late on all the bills and there’s no way I can pay my debt in full,” Zhang said.
Her story is playing out in similar ways across China, where the virus outbreak has been taking lives and ravaging the economy for more than three months. As Covid-19 works its way through the rest of Asia, Europe and the Americas — forcing countries into lockdown, driving up unemployment and pummeling small-business owners — analysts say it’s only a matter of time before defaults start spreading within the record $47 trillion pile of household debt globally.
The early indicators from China aren’t pretty. Overdue credit-card debt swelled last month by about 50% from a year earlier, according to executives at two banks who asked not to be named discussing internal figures. Qudian Inc., a Beijing-based online lender, said its delinquency ratio jumped to 20% in February from 13% at the end of last year. China Merchants Bank Co., one of the country’s biggest providers of consumer credit, said this month that it “pressed the pause button” on its credit-card business after a “significant” increase in past-due loans. An estimated 8 million people in China lost their jobs in February.
“These issues in China are a preview of what we should expect throughout the world,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.
While the extent of the squeeze on consumers and their lenders will depend on the effectiveness of government efforts to contain the virus and shore up economies, the scope for pain is immense.
Households around the world now have $12 trillion more debt than they did during the run-up to the 2008 financial crisis, the Institute of International Finance said in a report this month. Household debt-to-GDP ratios in countries including France, Switzerland, New Zealand and Nigeria have never been higher.
In Australia, which has the highest household debt levels among G20 nations, the country’s largest lender said on Thursday that its financial assistance lines are receiving eight times the normal call volume. A similar surge in queries has flooded lenders in the U.S., where credit-card balances swelled to an unprecedented $930 billion last year and 3.28 million people filed for jobless benefits during the week ended March 21 — quadruple the previous record.
