The Perils of Chinese Thrift

Households are shunning debt and piling on savings, threatening a global growth engine

- Yujing Liu and Tom Hancock

Anna Luan is worried about the future. The Shanghai internet business where she works hasn’t paid her salary in full since April, when city authorities instituted a strict lockdown to contain the spread of Covid-19. Luckily the 30-year-old built up savings through the pandemic, which she’s dipped into to cover regular expenses. She’s also used some of that money to pay off 200,000 yuan ($29,500) in mortgage debt on the two homes she owns in her hometown of Changzhou. “So many companies are laying off people and cutting pay,” Luan says. “Now I just want to save any spare cash I have and don’t even dare to spend.”

Recent surveys show Chinese households are more pessimistic about future income growth than they’ve ever been—even at the pandemic’s start or after the global financial crisis. That’s motivating them to cut back debt and beef up savings, a trend that could depress economic growth for years.

Households amassed 10.3 trillion yuan in bank deposits in the first half of 2022, an almost 13% increase from the same period a year earlier and the largest jump on record. Their borrowing grew 8%, the slowest pace since 2007.

Chinese consumers have plenty of reason to feel downbeat. The economy is slowing because of Beijing’s draconian Covid-zero posture and a deep slump in the property sector, among other factors. Household wealth has taken a hit from falling house prices, and youth unemployment hit an all-time high of almost 20% in July. Officials have privately acknowledged that this year’s government target of about 5.5% annual gross domestic product growth isn’t achievable.