Commentary: The Urgent Need to Reverse Chinese Household Deleveraging
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Over the first two months of 2026, China’s aggregate financing painted a picture of a two-speed economy. On one hand, government and corporate borrowing are accelerating. On the other, the Chinese household sector is in full retreat.
Beijing has continued to deploy fiscal support, front-loading 2.4 trillion yuan ($348 billion) in government financing in the first two months — roughly 17% of the annual budget, keeping pace with previous targets. Meanwhile, corporate financing has rebounded to an annualized run rate of 18.5 trillion yuan. As producer prices (PPI) rise, real corporate borrowing costs have dropped below 5% and are expected to dip closer to 4%. Driven by this favorable environment, corporate credit expansion will likely continue its upward trajectory.
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- Government and corporate borrowing in China accelerated in early 2026, with 2.4 trillion yuan in government financing and corporate credit annualized at 18.5 trillion yuan.
- Household borrowing stalled, with annualized growth at only 200 billion yuan, driven by high real borrowing costs, weak private sector income and employment growth, and a sharp decline in wealth.
- Persistent consumer pessimism threatens broader economic recovery, making household confidence a critical policy priority.
- China Construction Bank
- Zhang Tao, an economist, is affiliated with the Financial Market Department of China Construction Bank. His insights are featured in the article, discussing China's two-speed economy and the challenges in household financing.
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