(Yicai Global) Oct. 30 -- Chinese residents' mushrooming short-term debt amid falling consumption deserves special attention as the money may have flowed into the housing market, a report indicates.

China's Macroeconomic Situation Analysis and Forecast Research Group of the Institute for Advanced Researches at Shanghai University of Finance and Economics released its third-quarter macroeconomic analysis and forecast report yesterday.

The household debt structure continues to change with the ratio of short-term loans gradually increasing against long-term loans since last year, per the report.
The proportion of household loans among total loans has been going down since last year and dropped to 54 percent in September from 99 percent in July 2016. More households have shifted their financing approach to short-term loans, the report claimed.

The steady decline of residents' mid- and long-term loans results from the real estate market cooldown as the growth in China's home sales has trended down in the first three quarters.

The cumulative annual growth rate of the total area of home sales from January to September was 3 percent, significantly lower than 10 percent in the same period of last year, while the cumulative growth rate of sales also dropped to 13 percent from almost 15 percent in the same period last year.

Nominal consumption has risen, and real consumption continues to decline though the short-term loans which residents should have used for consumption have burgeoned, according to the survey data, the report noted. The actual average annual growth rate in the third quarter fell to 6.5 percent, 0.7 percentage points lower than the second quarter. This makes consumption one of the main causes of slowing GDP growth, per the report.

Two factors affect consumption in the long run, disposable income and debt-asset ratios. The cumulative annual growth rate of disposable income has stayed at 6.6 percent since the first quarter. Consumption should therefore see stable growth if debt-asset ratio growth remains constant and the disposable income growth rate stays the same, the report stated.

The consumption growth rate has not improved significantly despite such a high volume of short-term loans, suggesting households may have used these loans to make house down payments or mortgage payments, the group said.

China's provincial household leverage ratio (referred to as the ratio of total household loans to total household deposits) also rose by varying degrees this year, with Jiangsu's ratio up by 15 percent and Hainan's by nearly 10 percent compared with their respective results in last year's third quarter.

Increasing household leverage ratios amid the slowdown in household debt growth rates indicate household savings are growing slower than debt but the falling rate of growth in household savings' will greatly lower Chinese families' ability to weather risks since savings are their best means of averting them, the report stated.

China should focus its policies on boosting household liquidity and stimulating consumption. October's personal income tax reform was a good start in spurring consumption by increasing people's disposable income, the report noted.

Editor: Ben Armour