China’s debt-to-GDP ratio declined in the second quarter of 2026 for the first time since 2022, driven chiefly by reduced borrowing among households and private companies, according to a report from the National Institution for Finance and Development (NIFD), a Beijing-based think tank. Despite this overall decrease, government borrowing continued to rise during the period.
The debt-to-GDP ratio fell 1.1 percentage points to 308.2 percent, even as China’s nominal gross domestic product (GDP) grew by 5.9 percent in the second quarter. However, the report cautioned that this headline improvement concealed ongoing balance-sheet contractions in the private sector, where both households and private firms are retreating from debt.
Household debt declined for the sixth consecutive quarter, with the debt-to-GDP ratio dropping 1.3 percentage points to 57.7 percent. Mortgage lending contracted for the 13th straight quarter, while consumer lending shrank further by 1.8 percent, compared to a 0.2 percent decline in the previous quarter. The shrinkage in borrowing reflects persistent challenges, including falling home prices and sluggish income growth, which have limited households’ demand for credit. The report emphasized that this reduction in household borrowing reflects more than a mere pause in credit accumulation; instead, it signals a genuine contraction of household credit.
The weak income growth amid ongoing economic expansion was described as a “jobless boom,” driven by increased AI-related investment from technology companies that have not translated into wider employment gains or improved household incomes. This trend aligns with concerns about a K-shaped recovery in China’s economy, where gains are unevenly distributed.
Private companies also pulled back on debt and investment, with fixed-asset investment declining by 8.5 percent year-on-year. Nearly 60 percent of publicly listed private firms reduced their debt-to-asset ratios during the quarter, and around 30 percent cut investment in fixed assets. The report attributed these actions to pressures faced by private manufacturers, particularly in mid- and downstream sectors, where factory-gate prices increased faster than consumer prices by 3.1 percentage points in June—the largest margin since July 2022. As a result, many firms experienced revenue gains coupled with narrower profit margins, discouraging further borrowing and investment.
Corporate debt nonetheless grew 7.8 percent annually, supported mostly by bond issuance from larger, creditworthy companies rather than increased bank lending. In contrast, government debt was the only category showing rising leverage, with the government’s debt-to-GDP ratio rising 0.7 percentage points to 17 percent year-on-year. This increase was almost entirely driven by the central government, whose debt ratio rose to 30.5 percent from 29.9 percent, while local government leverage remained steady at 40.4 percent.
The report appeared as China’s Politburo pledged to enhance macroeconomic policy support and accelerate fiscal spending in the second half of the year, responding to a slowdown in economic growth. Real GDP growth decelerated to 4.3 percent in the second quarter from 5 percent in the first quarter, even as nominal GDP growth accelerated.
The report concluded that sustaining improved inflation expectations and faster nominal growth will depend on repairing private-sector balance sheets alongside increased government borrowing.