(Wired) – One major drain on the American economy is the glut of consumer debt. In China, it’s the opposite.
The Chinese are notoriously savvy savers, with a gross national savings rate of about 51 percent, according to the World Bank. In the US, it hovers around 17 percent. Saving is valuable, of course. But in recent years, as the growth of the Chinese economy has slowed—thanks to declining demand for exports and new real estate projects—the government has been desperate to get its thrifty citizens to spend, spend, spend and drive economic growth from within.
The problem is the nation of savers doesn’t have a long history of consumer credit. According to a report by The University of Chicago’s Paulson Institute, Chinese households borrow around 32 percent of their household income in a given year, compared to US households, which borrow 81 percent. And because China doesn’t have a long history of consumer credit, lenders don’t have a lot of data like credit scores to help them gauge the trustworthiness of potential borrowers.
“If you’re trying to build a broader credit infrastructure you need credit transactions. But if you don’t have a broader credit infrastructure, you can’t have credit transactions. It’s a vicious cycle,” says Douglas Merrill, CEO of online lender ZestFinance.