Chinese consumers should be sober-minded when spending money, says an article in China Youth Daily. An excerpt follows:

Statistics recently released by the Chinese Academy of Social Sciences reveal that the average family debt to income ratios in Shanghai and Beijing, China's top two cities, are 155 percent and 122 percent respectively, even higher than the 115 percent in the United States.

Although family debts are inevitable in any market economy, and loan-based spending shows people's confidence in the future, high debt ratios can bring many unexpected consequences to not-so-affluent families. Take ordinary people in Beijing for example. The average annual income is only 13,000 yuan (US$ 1,600).

Chinese tradition values frugality. But taking out a loan became the fashion in China in the late 1990s. At that time the government stimulated domestic demand by encouraging personal consumption. Chinese banks were not very strict about an individual borrower's credibility and whether he or she could afford to pay back the loan. The rising prices of real estate have also forced people to buy their homes with loans.

In addition, imported ideology such as consumerism has greatly pepped up the Chinese desire to spend. The phenomenon is especially apparent among the young, who want to be "in" and think they will be so if they buy more luxury goods.

More loans do help to boost economic growth. Yet, over the long-term, they should be backed up by a well-functioning social security system and a complete individual credit system. The two systems are still not mature in China, so Chinese consumers' ability to pay debt is relatively weak compared to consumers in developed countries.

For more promising economic prospects and a more stable social environment, we should keep alert to anyone having too many debts to pay.

(China Daily May 16, 2005)