Chinese Journal Review: Household debt-to-income ratios, nuclear weapons, and investigating corruption

December 2019

This newsletter helps readers see China as China sees itself. Every month I survey the latest papers published in leading Chinese language academic journals focused on domestic politics, foreign policy, economics, and technology. Translated summaries of those papers appear here.

If you know someone who would like to subscribe, please encourage them to sign up.


In this edition:

  • Household Debt-to-GDP May be Lower than Official Statistics Indicate, but Low Income Groups Have Extremely High Total Debt Levels 

  • Build More Nuclear Weapons to Strengthen the Chinese Position vis-à-vis the US, Argues Scholar in International Security Journal

  • Prosecuting “Protective Umbrellas” – How to Make it Easier to Prosecute Public Officials Linked to Organized Crime


Household Debt-to-GDP May be Lower than Official Statistics Indicate, but Low Income Groups Have Extremely High Total Debt Levels 

Title: Report on China Household Leverage Ratio and Consumer Credit Usage (中国居民杆杆率和消费信贷问题研究报告)
Publisher: China Household Finance Survey and Research Center and Ant Financial Research Group
Authors: China Household Finance Survey and Research Center: Director Gan Li (甘犁), Qin Fang (秦芳), Lu Xiaomeng (路晓蒙), Yi Daichun (弋代春), Wang Xiang (王香), Zhou Ruixuan (周瑞轩); Ant Financial Research Group: Li Zhenhua (李振华), Lin Chen (林晨), Feng Chengcheng (冯程程), Wang Fang (王芳), Cheng Zhiyun (程志云), Wu Yaling (吴雅玲)
Link: https://bit.ly/2rlxPn5
Publication Date: October 2019

  • In October, the China Household Finance Survey and Research Center, a non-profit academic institution established by Southwestern University of Finance and Law, and Ant Financial Research Group released a report regarding consumer and household debt. Much of the data for this report comes from the Center’s 2019 China Household and Financial Survey (CHFS), which sampled 34,691 households across all mainland provinces except Xinjiang.

  • Some of the report’s most interesting findings include:

    • China’s household debt-to-disposable income ratios may be lower than is widely understood.

      • Previous studies that have evaluated China’s household debt-to-disposable income ratios have likely understated Chinese disposable incomes because they relied only on National Bureau of Statistics (NBS) data, the authors write.

      • Relying on a mix of CHFS and NBS data, the researchers estimate that China’s household debt-to-disposable income ratio was approximately 90.2 percent in 2018, up from 82.2 percent in 2017, and 73.1 percent in 2016. This diverges from many other analyses that have used NBS data that show that China had a 121.6 percent household debt-to-disposable income ratio in 2018, 112.3 percent in 2017, and 101.3 percent in 2016. These higher ratios are concerning because they exceed household debt-to-disposable income debt levels in the US just before the financial crisis.

      • These discrepancies in disposable income are rooted in how the NBS and this report’s authors calculate disposable income. This report’s authors factor in transfer income sources that the NBS does not (such as workers’ compensation and subsidies to farmers, for example). The National System of Accounts that the NBS relies on for its data also uses an accrual-based accounting method, whereas this report uses a cash-based method, which can also contribute to reporting discrepancies.

      • The authors note their methodology is more similar to the way OECD countries calculate household debt-to-income ratios.

  • China’s debt is controllable but vulnerabilities are increasing.

    • The authors comment that, while China’s debt is generally manageable, authorities should pay attention to two key vulnerabilities:

      • First, low-income groups have very high debt burdens. According to CHFS data, in 2019, the bottom 20 percent of income earners had a 1140.5 percent total debt-to-income ratio. This is in contrast to the top 20 percent of income earners, who had a much lower 129.5 percent total debt-to-income ratio. (My note: Other income earning groups had total debt-to-income ratios in excess of 100 percent, which seems to conflict with the report’s 90.2 percent household debt-to-disposable income ratio above. Unfortunately the authors did not release the disaggregated data, so I could not dig deeper.)

      • Low-income groups also have a more heavy reliance on non-bank sources of credit than do high-income groups. Nearly 75 percent of low-income earner debt came from non-bank sources of credit, whereas non-bank sources of credit accounted for 26 percent of high-income earners’ debt, according to the report.

      • Second, housing loans for second and third homes are increasing rapidly. In 2018, 65.9 percent of housing loans financed the purchase of a second or third home. Just seven years prior, in 2011, fewer than 30 percent of home loans were used to pay for a second or third home. (My note: This is a strong indicator of property speculation.)

  • China’s consumer credit industry is underdeveloped with significant room for growth.

    • Expanded access to consumer credit can significantly increase GDP consumption components, the authors write. They report that households with consumer loans had 25.4 percent higher consumption rates than households that did not. Consumer credit also provides an additional benefit because it promotes countercyclical spending during times of downward economic pressure (when the economy needs more spending, not less).

    • In 2019, just 13.7 percent of Chinese households had consumer loans (as opposed to 66.9 percent in the US in 2016).

    • The authors recommend that authorities pursue policies that make it easier for Chinese households to obtain consumer credit. Internet-based loans are one promising vehicle that can expand access to credit, they note, as borrowers of Chinese Internet loans typically have high repayment rates and low rates of default.

Note: The China Household Finance Survey is one of the most respected annual surveys conducted in China. Among other indicators, many China analysts use the CHFS to track China’s high rates of unoccupied apartments.


Build More Nuclear Weapons to Strengthen the Chinese Position vis-à-vis the US, Argues Scholar in International Security Journal

Title: Sino-US Composite Strategic Stable Relationship: Construction Basis, Basic Framework and Development Trend (中美复合战略稳定关系:建构依据、基本框架与发展趋势)
Journal: Journal of International Security Studies (国际安全研究)
Authors: Wang Zhengda, Shandong University of Political Science and Law (王政达)
Link: https://bit.ly/2LFELSK
Publication Date:
September 2019

  • The United States increasingly defines China as its main security threat, writes Shandong University School of Political Science and Law lecturer Wang Zhengda in the Journal of International Security Studies. Consequently, the United States dedicates more resources to countering China on military and trade issues, and in geopolitical challenges in the South China Sea, Taiwan Strait, North Korea, and India.

  • Strong economic interdependence between the United States and China has historically underpinned stability in the US-China bilateral relationship. However, given that the US is willing to put its trading interests with China aside by “provoking” a trade war, this may foreshadow future deterioration in other areas, he writes.

  • Wang argues that strengthening China’s nuclear capabilities can help improve China’s negotiating position and help counter the United States should the relationship worsen. The Soviet Union’s buildup of its nuclear weapons during the Cold War forced the United States to the negotiating table, he notes. While China should maintain a nuclear strategy focused on self-defense (and maintain its no first-strike policy), Wang argues that China should also:

    • build a nuclear arsenal that can penetrate the US air missile defense system. In addition to improving its missile technology, China should also dynamically link the number of nuclear missiles it maintains to the number of ground-to-air missile defense systems the United States deploys;

    • improve China’s own air missile defense system to counter buildup of US nuclear weapons along China’s borders, including near North Korea. He applauds China’s successful February 2018 air missile defense tests which show China’s technology in this area is improving;

    • increase the size of China’s nuclear submarine fleet and the range of missiles those submarines carry;

  • Wang concludes that China should promote greater dialogue on nuclear security issues with the United States, including through academic exchanges. In addition to reducing the likelihood for conflict, Wang notes that an important priority of these exchanges should be to convince skeptics in the United States that China has credible nuclear deterrent capabilities. 

Note: Wang Zhengda is a lecturer at Shandong University School of Political Science and Law. While Wang is not a well-known author, this paper appeared in the Journal of International Security Studies, which is published by the University of International Relations. Some prominent China analysts believe this university has institutional links to the Ministry of State Security.


Prosecuting “Protective Umbrellas” – How to Make it Easier to Prosecute Public Officials Linked to Organized Crime

Title: Underworld Organizations “Protective Umbrellas” — Review of Criminal Regulations (黑社会性质组织 “保护伞” 的 刑法规制检视与调试)
Journal: Social Sciences of Beijing (北京社会科学)
Authors: Xu Yongwei, Beijing Normal University (徐永伟)
Link: https://bit.ly/2NvC5Hk
Publication Date: May 2019

  • In his anti-corruption crackdown, Xi Jinping has prioritized punishment of public officials involved with organized crime. Many Chinese legal scholars consider public official complicity in organized crime an “essential” element in the “survival, development, and growth” of organized criminal organizations, writes scholar Xu Yongwei. The state will inevitably discover these illegal organizations, and this has given the pursuit of a public official protector (which Xu refers to as a “protective umbrella” 保护伞) an inevitable choice for criminal enterprises.

  • The number of prosecutions against public officials providing cover for criminal organizations is too few, Xu notes, especially given that organized crime and public official complicity often go hand in hand. Citing literature, Xu points to a 2014 study of organized crime prosecutions in Shanghai that identified the existence of “protective umbrellas” in just seven percent of cases. A 2018 review of organized crime cases in Guangdong identified “protective umbrellas” just 23 percent of the time. A 2011 review of cases in Chongqing showed a higher (but still underreported) “protective umbrella” recognition rate of 54 percent.

  • To strengthen prosecutions against public officials working with organized crime, Xu makes the following policy recommendations:

    • Establish leniency clauses in the criminal code for criminals who assist investigations against “protective umbrellas.” Sentences for cooperating witnesses should be lessened to incentivize evidence discovery.

    • China’s 1997 Criminal Act classifies “covering and condoning the organization of organized crime” as a crime of obstructing social management. Public security bureaus have jurisdiction over these types of crimes. According to Xu, this is problematic. Corruption is endemic to nearly every state organ, but “protective umbrellas” that work with organized crime groups are most frequently found in public security bureaus (PSBs). The law should be amended so that “covering and condoning the organization of organized crime” is classified as official malfeasance, which would transfer the investigation authority to other agencies, such as the Supreme People’s Procuratorate, and away from PSBs.

    • In those cases where public officials have been prosecuted for involvement with organized crime, the law has focused on the active measures those officials took to protect the criminal organizations. The law should be clarified to make it easier to prosecute officials who passively protect criminal organizations, for example, by possessing knowledge of illegal activity but failing to report it.

    • Finally, the legal system has traditionally treated sentencing for public officials as separate from the sentencing of the organized criminals themselves, with more leniency for the former. The law should give the public official who protects a criminal enterprise the same status as the organized crime leadership, and both should receive sentences of equivalent severity.

Note: Beijing Academy of Social Sciences publishes Social Sciences of Beijing. Xu Yongwei is not a well-known author. However, as of December 2019, this paper had three citations and 989 downloads, making it the most cited and downloaded paper published in 2019 related to organized crime.