In Depth: China’s Trillion-Yuan Personal Debt Hangover Weighs on Banking System

China's personal lending market is facing severe distress as of 2025, with branch managers of major state-owned banks actively pursuing clients to pay at least the interest on their loans to prevent defaults. The pressures have intensified from concerns in early 2024 into a crisis involving housing mortgages, consumer credit, credit card debt, and small business loans—all experiencing delinquency rates unseen since the 2008 financial crisis. Banks are struggling to keep up with the volume of missed payments, while the scale of the problem remains obscured as many troubled loans are quietly restructured or propped up by renewed interest payments [para. 1][para. 2][para. 3][para. 4][para. 5][para. 6].

According to the People’s Bank of China, household loans amounted to 82.84 trillion yuan ($11.4 trillion) at the end of 2024, with 24.14 trillion yuan in business loans, 21.01 trillion yuan in consumer credit, and 37.68 trillion yuan in home loans. Official data cite a non-performing loan (NPL) ratio of 1.5% for commercial banks—amounting to 1.24 trillion yuan in problematic personal debt—though analysts caution the true figure is likely higher [para. 5][para. 6]. In response, banks rushed to offload NPLs, with 74.27 billion yuan transferred in Q1 2025 alone (of which 37.04 billion yuan were personal loans, a 760% year-on-year surge), fundamentally reshaping the distressed debt market [para. 7][para. 8].

For the first time, national asset managers like China Cinda Asset Management have aggressively entered this market, historically dominated by regional players. Bulk personal NPL transfers started only in 2021, but the rapid expansion is pushed now not only by regulatory changes but by a surge in household financial distress. Cinda frames its involvement as both cleaning up bad debt and restoring trust in the financial system [para. 9][para. 10][para. 11][para. 12][para. 13][para. 14]. However, not all loans are eligible for bulk transfers—collateralized ones such as mortgages remain excluded, even as mortgage stress increases, particularly in smaller cities where falling populations and excess housing stock are pushing property values down [para. 15][para. 16][para. 17][para. 18].

Small business loans, often unsecured and made to sole proprietors, have become especially problematic as many borrowers in sectors like dining, leisure, and entertainment struggle amid a slow consumer recovery and real estate slump. Government stimulus often overlooks these service sectors, focusing instead on big-ticket goods. Additionally, US tariffs on Chinese exports have battered manufacturing hubs, leading to sudden closures and defaults [para. 19][para. 20][para. 21][para. 22][para. 23].

With courts overwhelmed by the number of cases, banks favor selling NPLs via channels like asset-backed securitization (ABS) and income-rights transfers. As of end-2024, 530 ABS products covered 1.18 trillion yuan, mainly credit card and unsecured loan NPLs; income-rights transfers accounted for 222.5 billion yuan between 2016 and 2024 [para. 29][para. 30][para. 31][para. 32][para. 33]. Yet the challenges remain steep—unlike corporate NPLs, personal debts are small, fragmented, and emotionally charged [para. 38].

Stringent regulations prevent principal reductions in personal loan restructurings, limiting resolutions to adjustments in interest or fees. In Q1 2025, personal NPLs were selling for just 4.1 cents on the yuan, highlighting the loss severity. Some experts advocate reforms, including allowing mortgages in bulk NPL transfers and introducing a personal bankruptcy law to offer more flexibility. For now, bank staff continue to press borrowers for payments, often settling for interest alone as a temporary remedy [para. 39][para. 40][para. 41][para. 42][para. 43][para. 44][para. 45][para. 46][para. 47].