China's economic reforms of the past 25 years have resulted in a rise in the standard of living that, just a generation ago, was beyond anyone's wildest dreams. In the developed coastal areas nearly everyone is, in a sense, newly rich.

Having had their first taste of wealth, thousands of young urban professionals are seeking the trappings of even more. They carry credit cards and take out loans to buy big-ticket items such as houses and cars. Such behavior often shocks an older generation that has always believed in saving to pay cash for everything.

A while back, three guests were invited to appear on a China Central Television program, "Chinese Economy Annual Report." Sociologist from Tsinghua University Li Qiang was the oldest of the three; Fan Gang, an economist, was in the middle in terms of age; and finance expert Zhong Wei was the youngest. When the host asked them how they spent their annual salary, Li Qiang answered that he would keep all his money in the bank. Fan Gang said that he would keep half of his money in the bank and invest the other half. Zhong Wei said that he didn't have any savings at all, and that actually he had some debts.

The three represented the consumption concepts among three different age groups in China. Like Zhong Wei, young people are turning increasingly to borrowing in order to buy what they want.

Total mortgage loans on houses in China amounted to no more than 20 billion yuan (US$2.4 billion) in 1997. By 2003, they had soared to1.2 trillion yuan (US$144.9 billion), an increase of almost 60 times in just seven years.

Commercial banks' records indicate that total outstanding auto loans were a mere 70 billion yuan (US$8.45 billion) in 2002. The figure rocketed to 180 billion yuan (US$21.7 billion) in 2003.

Optimistic borrowers

"These 'nouveau riche' occupy a very small part of the whole population," says Zhong Wei with Beijing Normal University.

Most borrowers live in cities, especially metropolises like Beijing and Shenzhen, which are powerful magnets to the young and upwardly mobile. Most of them are 25 to 40 years old, with good educations and high salaries. They generally feel a great deal of pressure at work and from life in general.

For example, Lu Jian stayed in Beijing after getting her MBA from a prestigious university. Recently she took out a mortgage to buy a house near the Western Hills.

"I wanted my own house near the Western Hills 10 years ago. Including the interior finishing and decoration costs, we had to pay more than 1 million yuan for my house. But I couldn't pay such a large amount of money all at once now. When I can pay that much in cash, I doubt if I could still buy a house like the one I have now. Borrowing helped me to realize my dream," recounts Lu.

Wu Hong is working at a university while he studies for his PhD. He took out a loan to buy a 90-square-meter house. Optimistic about his future, he believes that even in a worst-case scenario he will be able to pay his debts.

Gan Yong just graduated from university and bought a house near Qinghe, Beijing. After making the down payment and paying the tax, he has no money to finish the interior or buy furniture. He lives happily in an empty house that has nothing but a toilet bowl. Gan, whose hometown is far from the capital city, is beginning to put down his roots in Beijing.

Wang Qiang is a born-and-bred Beijinger who lives in Qianmen, in the old city center. He was hoping that the city's demolition and reconstruction schedule would help him change his living conditions. But he decided not to wait and two years ago borrowed money to buy a 30-square-meter apartment. "Although the place is small, it has its own bathroom. I can take a bath in my own house," says Wang. He is still waiting for the building demolition program to help him move to a bigger place.

"Almost all borrowers are confident about their futures. People in this group typically think of themselves as borrowing against their future," says Zhong Wei, who is a member of the group himself.

Now, more than 70 percent of the residences in Beijing and Shanghai were sold through mortgage loans. In the not-too-distant future, that figure will rise to 90 percent.

Consumption concepts among the younger generation in Chinese cities have changed quickly in no more than 10 years. A decade ago, these youths had nothing and knew nothing; now, they are rushing to the banks to finance their spending sprees.

The risk and the cost

Qiao Jie used to work in a foreign company. Together, she and her husband earned over 10,000 yuan (US$1,208) per month. They were pioneers in the mortgage market, and chose a loan with the highest monthly installments. Because their place is far from downtown, they also borrowed money to buy a car. Then they had a baby. Now their monthly bills amount to nearly 10,000 yuan a month, and Qiao quit her job because of conflicts with her boss. If she doesn't find another job soon, they may have to declare bankruptcy.

Many inexperienced borrowers fail to consider emergencies such as unemployment, illness and other accidents. Those with high salaries feel that they can borrow more, without thinking that they are also taking on more risk.

In order to reduce the risk of bankruptcy, the China Banking Regulatory Commission prescribes in the soon-to-be-implemented Regulation on Mortgage Risk Management for Commercial Banks that the highest monthly payment should be no more than 5,000 yuan for those monthly income is 10,000 yuan.

Zhuo Zhengbang from Hong Kong says that he is surprised to see how many first-time homebuyers take out a mortgage to buy a big house or apartment. According to Zhuo, young people in Hong Kong usually buy a small or secondhand house for their first purchase. If they can, they will sell it and move to a bigger place in the future. This prevents them from being overburdened with debt.

The debt itself is only a part of the cost. Chen Xin, a researcher on consumption with the Chinese Academy of Social Sciences, believes that when a borrower signs a contract with a bank he or she is mortgaging 20 or 30 years of time, wisdom and labor. Borrowers have to put all of their energy into making money, becoming slaves to debt consumption and indentured servants to the bank.

(China.org.cn by Wu Nanlan, March 18, 2004)