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 Interviews with Ma, a single-child, his mother and
grandmother, show how rapidly attitudes toward credit are
changing as the millennials generation - roughly those aged
between 18 and 35 - embraces debt like never before.
The frugal attitude of previous generations produced the bedrock
of China's credit worthiness - household savings equal to some
50 percent of GDP, one of the highest levels globally.
Ma and his cohorts are changing that equation. Their willingness
to borrow has driven up household lending – the fastest growing
area of China's debt. They are among the most indebted of their
peers in Asia, taking on debt 18.5 times their income,
significantly higher than their parents’ generation, a report
from insurer Manulife shows.
While their spending and borrowing is an opportunity for
lenders, brands and economic growth, it is also a risk as they
add to China's fast-growing debt.
Right now, Ma has a safety net - well-heeled and doting parents
who can pick up the tab. He lives in a one-bed flat in Lhasa,
the capital of China's Tibet region. His parents are in nearby
Shannan.
"I'll generally turn to mum and dad. They've always been able to
help me financially," said Ma. In May, he asked his parents for
financial support to open a restaurant. "I just need to ask and
they'll give me (money)."
CLEAR GAP
Parents paying off the credit card bills of their millennial
children is not unusual in China, but it could have
ramifications, said Rui Yao, an associate professor in personal
finance at the University of Missouri.
"They don't see the consequences of not paying. The thinking is
'my mom has it covered'", she said. "They're not prepared for an
economic downturn for sure."
The next generations may not be so lucky either. They will have
to support longer-living parents and potentially more children
as China relaxes its one-child policy. China's aging population
is already shrinking, which means greater financial pressure on
those working to support those who are not.
Ma says he is more frugal than his friends. He uses his bank
card and Ant Check Later, a popular online lending platform
owned by tech giant Alibaba Group Holding Ltd <BABA.N>.
This is a far cry from his parents' generation. Ma's mother, who
is 49, only started using a credit card three years ago.
"They couldn't spend on overdraft, so they really didn't
squander any money," he said.
The gap is clear: consumer credit is up nearly 300 percent over
the last six years alone, hitting around 23.5 trillion yuan
($3.41 trillion) in October.
This is set to more than double over the next five years to
nearly 53 trillion yuan, according to consultancy Mintel.
While mortgages are the lion's share of household debt, credit
card and consumer loans have shot up from just 4.6 percent of
household debt in 2015 to 16 percent now, BMI Research shows.
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"The young generation today has a totally different attitude to my
generation," said Ma's grandmother, Wei Chunyin, 76. She grew up in
the 1960s and said she was in debt just once - for 100 yuan, the
equivalent today of $14.50.
"We were very economical and hardworking," she said. "Clothing was
just to wear, and we wouldn't even really eat snacks, just food from
our unit," she said, referring to her workplace.
GROWING FORCE Ma's generation is the first in China's modern history
to be raised in relative prosperity and social stability.
They are better educated and already more affluent than their
elders. Boston Consulting Group and AliResearch said they are
expected to drive 65 percent of consumption growth until 2020, when
they will make up around 53 percent of total consumption spending,
up from 45 percent now.
"Understanding their mindset is critical and anybody ignores them at
their peril," Yum China Holdings Inc <YUMC.N> head Micky Pant said
in an interview.
Their potential has not been lost on the banks, with some
specifically targeting them for loans.
"Internally our appraisals are skewed toward the young consumer
groups. For example, front-line sales staff get a bonus 1.3 times
the normal level if they sign a young customer," said a banker in
the credit card department of China Merchants Bank, a leading credit
card provider.
"So everyone is out looking for youngster to sign up."When asked
about the strategy, CMB said it has many credit card products that
are welcomed by young people.
Bankers said lenders often know millennials have doting parents to
fall back on in a pinch.
"Taking a darker read on it, the parents of the post-90s generation
- who were born in the 60s or 70s - haven't yet retired, and are
financially pretty secure," said a debt collector in the credit card
department of a listed city bank.
Like other parents in China, Ma's mother and father, a nurse and
government officer at the local Meteorological Administration
respectively, are resigned to supporting their son financially for
now - even if he defaults.
Ma's mother, Zhen Yinchun, said that when she was young she saved
around one-third of her income because there was little to spend it
on, in contrast to her son. It is a running joke in the family
whether Ma will return any money he has borrowed, she said.
"I'll say it's a loan and he'll agree. But up to now he's never paid
anything back," she said.
(Reporting by Adam Jourdan and Engen Tham; Editing by Neil Fullick)
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