Can China’s debt problem be solved?

Summary

Business Daily (BBC World Service)

Episode: Can China’s debt problem be solved?
Date: October 19, 2025
Host: Ed Butler

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Overview

This episode of Business Daily delves into the growing problem of personal and household debt in China, the societal and economic consequences, and the policies being discussed by the Communist Party as it prepares its latest five-year economic plan. Via personal stories of Chinese citizens grappling with unmanageable debt, insights from economists, and government perspectives, the episode asks whether China’s debt crisis is manageable—or a sign of more troubling economic fundamentals.

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Key Discussion Points & Insights

1. The Reality for Debtors in China

• Personal narratives illustrate the immense pressure faced by indebted Chinese citizens and entrepreneurs, exacerbated by post-pandemic economic sluggishness.
• Legal and social repercussions for those in default can be severe, including travel restrictions, loss of professional status, frozen assets, and even detention.

Notable Story: Mr. Lin (Shanghai business owner)

• Ran a content innovation company that thrived prior to COVID-19, only to be devastated by the pandemic's economic fallout. (02:30–04:11)
  • "The pandemic made it impossible to operate normally. No classes, no income. But we still had to pay rent and staff salaries." — Mr. Lin (03:08)
  • "Our total debt was close to $3 million ... I personally guaranteed a $300,000 bank loan. So that made me personally liable." — Mr. Lin (03:26)
• Labeled as “Lao Lai” (dishonest debtor), Mr. Lin faced loss of mobility and spent time in jail for inability to repay (03:57–04:35).
  • "I can't take high speed trains or flights, can't stay at luxury hotels, and I can't serve as a company shareholder or executive. I have no income, so I couldn't repay the debts I'd personally guaranteed." — Mr. Lin (03:57)
  • "Seven or eight people sharing a 20 square meter cell ... living and sleeping there for 15 days." — Mr. Lin (04:35)
• Courts often struggle to differentiate between those genuinely unable to pay and those willfully refusing (05:14).

Notable Story: Ms. Wang (restaurant chain owner)

• Business destroyed by 2022 Shanghai lockdown; trapped in the system and blacklisted.
  • "They want me to carry out normal business activities to repay the debt. But how can I repay such a large debt if my money is frozen?... It makes me feel powerless, unable to do anything." — Ms. Wang (05:52)

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2. The Scale of the Problem

• Household debt and the number of people in arrears have sharply increased, potentially affecting 25–34 million Chinese citizens (06:30).
• Debtors’ rights and the scope for bankruptcy resolution are limited, with persistent stigma and legal consequences.

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3. Official Versus On-the-Ground Perspectives

• Government & Pro-Government View:

  • Former government advisor Henry Wang maintains the issue remains “manageable” given China’s high national savings rates and a variety of stimulus policies and infrastructure projects in the works (07:00).
    • "China has grown into a more mature economy... there’s a big room to tap into [savings]. The government is in process of doing that." — Henry Wang (07:00)

• On-the-Street Reality:

  • Many business owners, like jewelry store managers, report plummeting sales and unstable job markets (07:54).
    • "The business dropped significantly for sure. There are few people coming to buy... there's no steady source of income." — Jewelry store owner (07:54)
  • Consumer confidence remains weak. Box office receipts—a key cultural indicator—fell 13% compared to the previous year.
    • "China ended with one of its weakest box office showings in recent years, down 13% from a year earlier." — Kerry Allen (08:18)
  • Retail and catering sales grew only 2.7% year-on-year, half of last year’s rate (08:18–08:50).

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4. Younger Generations and Job Security

• Young Chinese face job insecurity, gig-economy instability, and real anxiety about their financial futures.
  • "There is a lot of job insecurity especially as well now when we're starting to see a change in the way that people earn money ... Jobs that they might do for a bit and they don't know how secure they are." — Kerry Allen (09:02)

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5. Stimulus Measures and Consumption Boosts

• Local governments and businesses have responded with deep discounts and festivals (e.g., Singles Day moved forward, hotels discounted up to 60%) to spur spending (09:34).
  • Some ordinary consumers view these periods as a “bonanza”—but the underlying weakness persists.
  • "A ticket to the scenic spot can also be used to have a local specialty sandwich for free. There are two of us, so we have two tickets for exchanges, which is a very considerable discount." — Consumer (10:21)
• Aggressive discounting, however, carries risks of a “deflationary spiral” as firms take losses and consumers expect ever-lower prices (10:33).

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6. Economist Analysis: Policy Dilemmas

• George Magnus (China Centre, Oxford University) is skeptical of the government’s focus on high growth targets and industrial policy. He critiques the lack of true household stimulus or reform.
  • "My hunch is that they're going to double down on what they're doing already, which is unrealistically high growth rates, industrial policy at the expense of economic reform and household stimulus and so on. I don't really see any real signs of change." — George Magnus (14:20)
  • "They have this view, it's a very kind of Leninist view, that ... making society richer is just to make more stuff ... the belief is that if you emphasize production and supply enough, then all the benefits will trickle down. ... Lots of economists actually think this is flawed." — George Magnus (15:13)
• Argues that true reform would require “transfer of wealth and power” from state to households—something politically anathema to the Communist Party (16:29).
  • "To boost a consumer economy they need a liberal economy ... Politically I think that's where the blockages really lie." — George Magnus (17:33)

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7. Prospects For Reform & Optimism

• Henry Wang is more optimistic, arguing that growing the services sector and urbanization reforms could provide fresh growth if barriers (like the urban hukou system) are relaxed (17:53–18:41).
  • "If they can really break that [hukou] barrier, you can expect...another boom..." — Henry Wang (17:53)

8. A Resilient Spirit

• Despite immense setbacks, individuals like Mr. Lin remain determined.
  • "I'm hopeful. ... We just haven't found the right business model yet. But gradually we're getting close to it. Once we do, the debt won't be a big problem ... Tens of millions aren't a lot in my line of business, but if it fails, even a few thousand can crush it." — Mr. Lin (19:18)

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Notable Quotes & Memorable Moments

• Mr. Lin, on the system's harshness:
  "Courts struggle to decide who won't pay and who can't pay." (05:14)
• Ms. Wang, on being blacklisted:
  "I would definitely pay off my debts, but I really don't want to continue to be blacklisted like this. It makes me feel powerless, unable to do anything." (05:52)
• Kerry Allen, on young people's struggles:
  "There's a real insecurity about long term saving and job security." (09:02)
• George Magnus, on economic policy:
  "To boost a consumer economy they need a liberal economy ... Politically I think that's where the blockages really lie." (17:33)

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Important Segment Timestamps

| Timestamp | Segment | Speaker(s) | |-----------|--------------------------------------------------------------|--------------------------| | 01:08 | Episode introduction: Deflation and household debt context | Ed Butler | | 02:30 | Personal story: Mr. Lin’s business, bankruptcy, legal issues | Mr. Lin | | 05:31 | Personal story: Ms. Wang, restaurant struggles post-lockdown | Ms. Wang | | 06:30 | Data and scale of household debt crisis | Ed Butler | | 07:00 | Government perspective on debt manageability | Henry Wang | | 07:54 | On-the-ground perspective from business owners | Jewelry Store Owner | | 08:18 | Economic indicators: box office, retail and catering sales | Kerry Allen | | 09:02 | Young people, job insecurity and gig economy | Kerry Allen | | 10:33 | Consumer reactions to retail discounts and events | Several, Ms. Wang | | 11:06 | Impact and potential dangers of heavy discounting | Charles de Palette | | 12:50 | Setting the five-year plan and industrial policy | Ed Butler | | 13:43 | Industrial policy critique and consumer neglect | George Magnus | | 14:52 | Why China neglects household stimulus | George Magnus | | 15:13 | The philosophical divide with western models | George Magnus | | 16:29 | Reform obstacles and political considerations | George Magnus, Ed Butler | | 17:53 | Optimism from the government adviser | Henry Wang | | 19:18 | Mr. Lin's resilient outlook | Mr. Lin |

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Episode Takeaways

• China’s household and SME debt crisis is not just economic but deeply personal, as millions struggle within a rigid, frequently punitive system.
• Official optimism and stimulus do exist but are often undermined by sluggish recovery, consumer pessimism, and a focus on industrial over household policy.
• Reform toward a more consumer-driven economy may be needed, but political and ideological barriers persist.
• Despite these challenges, the resilience of Chinese entrepreneurs and workers remains a hopeful theme.

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For listeners seeking to understand both the lived experience and high-level policy dilemmas of China’s debt challenge, this episode offers a multifaceted and insightful overview.

Transcript

[Ed Butler]

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[Ed Butler]

Hi there, I'm Ed Butler. Welcome to Business Daily on the BBC World Service. What's it like being a Chinese consumer these days? The world's second largest economy is seeing sluggish spending and there are now fears of deflation there. Tens of millions of citizens find themselves facing unrepayable debt.

[Ms. Wang]

How can I repay such a large debt if my money is frozen?

[Ed Butler]

This week, the ruling party is drawing up a new five year economic plan. There's talk of stimulus, a bailout for the Chinese consumer. But will that really happen?

[George Magnus]

My hunch is that they're going to double down on what they're doing already, which is unrealistically high growth rates, industrial policy at the expense of household stimulus, and so on. The rhetoric is changing, but the actions really are kind of stuck, I think.

[Ed Butler]

China's economic troubles. That's Business daily from the BBC. This is Mr. Lin. He's a business owner in his 60s in Shanghai. He's asked us not to give his full name for fear of reprisal from the authorities. His debt story is one that's become increasingly common for millions of middle class Chinese.

[Mr. Lin]

We're a content innovation company, which means a lot of our work involves research and development in cultural and educational fields. My company was founded in 2006 and by 2019 we were doing very well. Our programs were popular in many schools and kindergartens. But then the pandemic hit, which had a huge impact.

[Ed Butler]

During the COVID pandemic, there were numerous restrictions imposed in cities like Shanghai. Loud hailers called on citizens to honour the new shutdown regulations. Schools and businesses were closed for weeks on end.

[Mr. Lin]

The pandemic made it impossible to operate normally. No classes, no income. But we still had to pay rent and staff salaries. Many families cut back on spending.

[Ed Butler]

For Mr. Lin, the routine debts of running his business started to build to frightening levels.

[Mr. Lin]

Our total debt was close to $3 million. The court formally declared the company bankrupt. In my case, I personally guaranteed a $300,000 bank loan. So that made me personally liable.

[Ed Butler]

In China, individual creditors who are unable to pay their debts, but who are thought to be able to do so, are branded with a label Lao Lai Dishonest. They then face restrictions on their movement and what they can spend.

[Mr. Lin]

I can't take high speed trains or flights, can't stay at luxury hotels, and I can't serve as a company shareholder or executive. I have no income, so I couldn't repay the debts I'd personally guaranteed.

[Ed Butler]

Because Mr. Lin guaranteed some of the company loans, his plight became even more serious. His creditors went to court and he found himself thrown in jail for a while alongside petty criminals. The Chinese authorities won't discuss individual cases like his, but they say that all bankruptcies are handled in accordance with the law.

[Mr. Lin]

It's hard. Seven or eight people sharing a 20 square meter cell, living and sleeping there for 15 days. A few of the others in the cell were also in debt. One man owed just $4,000. The court told him to pay within 20 minutes or be detained. He offered to pay a few hundred, but said he couldn't pay more. They rejected this and locked him up. If you're ruled to have the means but refuse to pay, it's considered resisting court judgment, a criminal offence. I didn't commit fraud. Businesses succeed or fail. That's reality. But if it were personal borrowing and I refused to repay, that'd be different.

[Ed Butler]

So does he now think the system is too harsh? Unfair?

[Mr. Lin]

It's complicated. There are indeed some people who have the means and refuse to pay. But many of us genuinely can't pay. I live off help from friends and family. Now my pension has even been frozen by the court. Courts struggle to decide who won't pay and who can't pay.

[Ed Butler]

Mr. Lin's story is far from unique. Another Shanghai professional who wished to be called simply Ms. Wang, told the BBC about her experiences falling Foul of the bankruptcy laws, running a small restaurant chain. She also got into financial difficulties after the COVID pandemic.

[Ms. Wang]

The lockdown in Shanghai in early 2022 was the last stroll. I had zero income for a month, but one store was tens of thousands of yuan in the red. I couldn't hold on at all. Everyone was broke and I didn't know where the money would come from. They want me to carry out normal business activities to repay the debt. But how can I repay such a large debt if my money is frozen? I would definitely pay off my debts, but I really don't want to continue to be blacklisted like this. It makes me feel powerless, unable to do anything.

[Ed Butler]

Household debt in China has surged in the last couple of decades and the number of those in arrears has doubled in just the last five years. Between 25 and 34 million people may now be in default, according to some estimates. But Henry Wang, founder of the center for China Globalization and a former advisor to China's State Council says that while concerning the problem of debt is still manageable and the broader signs suggest that consumer confidence is coming back.

[Henry Wang]

Well, I think this is expected because China has grown into a more matured economy and I think there's an issue of recovery still a bit from COVID but I think in general if you want to stimulate more, the Chinese have one of the highest savings in the world. There's a big room to tap into that. So our government is in process of doing that. There's a lot of stimulus packages for example, China is going to build another five three gorges biggest project in China. So it's a matter of time and I'm sure confidence is recovering and is coming back.

[Ed Butler]

That's the pro government view, but is it borne out by the evidence? At the start of this month, China celebrated Golden Week, a multi day holiday marking the original founding of the People's Republic of China. Many businesses, like this jewellery store owner, say that finding customers has been a hard slog.

[Kerry Allen]

The business dropped significantly for sure. There are few people coming to buy. People's incomes are unstable, jobs are unstable, there's no steady source of income.

[Ed Butler]

So they are not buying the view of one business. But do recent figures suggest a return of consumer confidence? The BBC's China Media Analyst Kerry Allen says the picture is at best mixed.

[Kerry Allen]

One of the main indexes that China likes to look at is the box office because cinemas try to get their big releases out at this time. It always traditionally has brought in a lot of money but actually this year China ended with one of its weakest box office showings in recent years, down 13% from a year earlier. So that's been a real kind of indication that people haven't been spending as much as usual. Retail and catering enterprises, they've only seen year on year sales that have increased 2.7% and it was nearly double that last year.

[Ed Butler]

So pretty weak signs coming from the Chinese consumer. I mean you, you spend your time monitoring Chinese social media. Does the cost of living, does the cost of debt feature heavily in how people chat?

[Kerry Allen]

They do, yes. And there's a real concern amongst young people who just feel burnt out. There is a lot of job insecurity especially as well now when we're starting to see a change in the way that people earn money. You know, there's a big push towards the gig economy. It's small hustles, not long term stable employment. Jobs that they might do for a bit and they don't know how secure they are. So yeah, there's a real, I would say amongst young Chinese people now, a real insecurity about long term saving and job security.

[Ed Butler]

Kerry Allen to boost flagging sales, local governments and businesses have started offering all sorts of incentives and discounts to customers like multi day deals and trade in schemes for old household appliances. Some hotels, hotels during Golden Week were even offering 60% discounts on rooms. And now the biggest annual shopping event known as Singles Day with all kinds of further discounts has been brought forward several weeks by retailers to boost spending. To many ordinary consumers it feels like a bit of a bonanza.

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It feels like a festival. I come here for a concert but also discover new places to eat and shop.

[Ms. Wang]

And I can also visit museums for free.

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A ticket to the scenic spot can also be used to have a local specialty sandwich for free. There are two of us, so we have two tickets for exchanges, which is a very considerable discount.

[Ed Butler]

But while it's got them spending more, is all this price cutting actually good news for the economy? Even the president Xi Jinping himself has started warning firms against too much discounting because it might be leading to what economists call a deflationary spiral. If people start to expect ever lower prices, they'll simply keep the money in their pockets waiting for a better deal next month. And businesses are often taking a loss with these discounts just to bring in some revenue. Charles de Palette is a restaurateur based in Beijing.

[Charles de Palette]

I have seen some places where they will do particular deals, like I have a friend who has a restaurant and they have a tapas Tuesday deal where you order any alcoholic drink and then you get any tapas for 10 renminbi. And that night normally was quite busy, but that's even more busy than normal. And you do see some things, particularly Douyin TikTok. You'll see a very crazy deals where they do maybe arju, which means like 20% of the price of what it should be to get people in the door as lost leaders. I mean, it's not terrible. I do think the economy's okay. Is it what it was 10 years ago? No, it's just. It's a tougher market.

[Ed Butler]

You're listening to Business Daily from the BBC World Service.

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[Ed Butler]

I'm Ed Butler and today we're looking at the state of China's economy. It's slowing growth. This as it prepares for a major event in its economic calendar. Amidst much fanfare this week, the Communist Party in Beijing is holding its next official plenum behind closed doors. It should be said it will decide the country's next five year economic plan. Traditionally, this is a big deal. The state has for decades focused its huge resources on sustaining and supporting supporting a predetermined industrial policy, one capable of powering growth and supporting the types of technological innovation that are needed to compete with the United States and other rich nations. The question is though, does that mean the poor Chinese consumer is going to be forgotten?

[George Magnus]

If the government sets a target, as it does, of about 5% growth each year, that target is always met. But of course, building uncommercial infrastructure or loss making enterprises or bridges to nowhere and so on and so forth, I mean, this really isn't what they're supposed to be trying to do.

[Ed Butler]

George Magnus is an economist and an associate at the China Centre at Oxford University. He says the whole emphasis on an industrial policy in China spanning five years and focusing on a set growth rate neglects the increasingly fast moving problems that are afflicting China's consumers. It's they who need the stimulus, he says, not industry.

[George Magnus]

Eventually the government will probably have to come to terms with the fact that the economy can't keep growing by 5% per annum. It's an unrealistically high growth rate. But I think in the five year plan, which is about to be discussed, my hunch is that they're going to double down on what they're doing already, which is unrealistically high growth rates, industrial policy at the expense of economic reform and household stimulus and so on. I don't really see any real signs of change. The rhetoric is changing, but the actions really are kind of stuck.

[Ed Butler]

I think you've written about this industrial policy in China, the vast sums. The government is still effectively allocating to various sectors, as you say, to infrastructure projects, to individual firms sometimes. Why is that negating the possibility of the answer, as you put it, which is for the consumer to take a bigger share of the burden?

[George Magnus]

Well, I think the answer to that really is because the kinds of policies which the government pursues in promoting and emphasizing its industrial policy are exactly the opposite of those that they would otherwise try to pursue if they wanted to emphasize the role of consumer spending and services. They don't want to copy what they regard as a flawed model, which is the one that we in the Western world and many other countries pursue. They think it's flawed. They have this view, it's a very kind of Leninist view, that actually the way to make society richer is just to make more stuff. All your climate change, manufacturing equipment and electric vehicles and batteries and quantum computing and robotics and so on and so forth. So China wants to be the master in all of these areas. And the belief is that if you emphasize production and supply enough, then all the benefits will trickle down to the workers and to the citizens. And lots of economists actually think this is flawed. This just doesn't work like that.

[Ed Butler]

The Western view, the counter view, for those who perhaps don't know, would simply be to say you kind of need a recession sometimes. You need to go bust. Things need to be allowed to die in order for a renewal to be sustainable.

[George Magnus]

Yes, in its crudest form, a process of creative destruction. Okay, There are extremes of this which actually are probably very uncomfortable for many people. But there's also sort of a happy medium. By allowing firms to go bankrupt, by allowing the real estate sector in China, which is chronically overbuilt, to shrink. You could, if you have the right mix of policies, encourage different sorts of industries and different sorts of consumer oriented activities to take pride of place. Now to do that you have to have economic reform, which I think the Chinese government talks about. But to do that actually requires a transfer of power. You have to transfer wealth and power away from state entities and local governments to the private sector, to households to give them the incentives and the power to be able to decide what they want to spend money on, what they want to produce and so on, so forth. This is really anathema to the Communist Party. They don't really want to do this.

[Ed Butler]

So it's a political problem in that sense that to boost a consumer economy they need a liberal economy.

[George Magnus]

Effectively, yes, there's no question that China can do this, but politically I think that's where the blockages really lie.

[Ed Butler]

Officially China is much more optimistic, of course, and despite the consumer malaise, the figures continue to show healthy growth. Here once again is the former Chinese government adviser Henry Wang.

[Henry Wang]

I think now China probably going to spend more on the service. We will spend more on the Medicare, the seniors, aging homes, all those educational industries. There's many other service sector will come up and particularly AI driven also on other services as well. I agree, you know that government could do more. For example, there has 300 million migrant workers from rural areas that resides in the city, but they're not have a citizen status. So if they can really break that barrier, you can expect there's going to be another boom for hosting this 100, 200 million migrant workers in the cities. That policy hasn't really come, we say.

[Ed Butler]

I mean, why hasn't it come and are you expecting it? This year we've got the Communist Party Congress coming up with the new five year plan. Do you think there's going to be a shift more towards supporting working class Chinese?

[Henry Wang]

Well, I think that's, that's going to happen. As a matter of fact, if this is a new economic conference, we're going to address a lot of urbanization issues like they are relaxed on the Hukou, relax on the resettlement in the cities and relax on giving college students ability to move around cities. So I'm still optimistic that the government still have a lot of policy in their toolbox to fix the situation.

[Ed Butler]

Henry Wang well, despite facing personal ruin and bankruptcy, Mr. Lin in Shanghai remains determined to bounce back as a businessman. The hostile business climate, he says, won't deter him.

[Mr. Lin]

I'm hopeful. The work I've done for over 20 years has great potential, not just in China, but globally. Our technology and content are advanced. We just haven't found the right business model yet. But gradually we're getting close to it. Once we do, the debt won't be a big problem. Tens of millions aren't a lot in my line of business, but if it fails, even a few thousand can crush it.

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[George Magnus]

Limu is that guy with the binoculars watching us.

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[Ed Butler]

Liberty Liberty Liberty Savings.

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