Research On The Influencing Factors And Economic Effects Of Household Leverage In China

In the past forty years,China’s economic development has made remarkable progress,accompanied by a significant increase in the level of household leverage.The next five years would be a crucial period for the comprehensive construction of a modernized socialism country.The main goals and tasks include achieving new breakthroughs in high-quality economic development,significantly enhancing selfreliance and self-strengthening capabilities in science and technology,making significant progress in building a new development pattern and a modern economic system.In this process,the increased household leverage in China has greatly stimulated the consumption level of residents and the development of related industries such as real estate and private investments.At the same time,the rapid rise in household leverage will also have certain impacts on the stable development of the national economy.In 2017,the International Monetary Fund(IMF)stated in its Global Financial Stability Report that once household debt exceeds 30%of GDP,it will affect the medium-term economic growth of the economy,and when the household leverage ratio of a country exceeds 65%,it will affect the macroeconomic and financial stability of that country.According to the standards of the International Monetary Fund,the overall level of household leverage in China has already had an impact on medium-term economic growth.Therefore,this article takes China’s household leverage as the research object and adopts the research approach of "evolution,characteristics,and influencing factors analysis of household leverage;analysis of the growth effect of household leverage;analysis of the income effect of household leverage;and analysis of the inter-sector risk effect of household leverage.The main research contents are as follows:First,starting from the evolution and motivation of household borrowing behavior,this article conducts an in-depth analysis of the historical development and current situation of household leverage in China,and summarizes the characteristics of household leverage from the perspectives of time,overall level,and structure.This article also compares the household leverage ratio of China with the leverage ratios of other sectors in China and other countries from multiple dimensions,in order to explore the overall level and structural characteristics of China’s household leverage at the national and international levels.From the perspective of time,the household leverage ratio has been continuously increasing over the past 30 years,from 8.3%in 1993 to 62.2%in 2021.Among them,from 1993 to 2008,the increase in the household leverage ratio was moderate;from 2009 to 2020,the household leverage ratio increased rapidly.From the perspective of structural characteristics,the proportion of consumption leverage and medium-to long-term leverage in household loans is relatively high and has increased significantly.Meanwhile,based on the China Family Panel Studies(CFPS)data,a sample household balance sheet of resident households is constructed,and it is found that the leverage ratio of households with mortgage loans has significantly increased compared to the overall sample.In the comparative analysis of leverage ratios among sectors,it is found that the level of household leverage in China is relatively low compared to other sectors,but the growth rate is large,especially since 2008 when it started to rise rapidly.The level of household leverage is similar to that of the government sector but significantly lower than that of the real economy sector and non-financial enterprise sector.In the international comparison of household leverage,developed countries generally have excessively high and stable levels of household leverage,developing countries have relatively low but rapidly increasing household leverage,and China’s household leverage level is initially consistent with that of emerging economies,but with a larger increase.Second,this article explores the factors influencing household leverage from macro,micro,and behavioral perspectives.At the macro level,this article empirically analyzes the influencing factors of household leverage using data from the Chinese Academy of Social Sciences(CNBS),the Bank for International Settlements(BIS),the National Bureau of Statistics,and the People’s Bank of China.Furthermore,based on micro-level data from the China Family Panel Studies(CFPS),this article investigates the impact of individual,household,and regional factors on household leverage.Additionally,this article theoretically explains the changes in household borrowing behavior and leverage ratio from the perspective of a cross-period borrowing model with dual-channel mental accounts,and proposes two new factors at the individual level:household asset selection and borrowing psychology.The theoretical analysis and statistical evidence show that the macro factors affecting the level of household leverage in China mainly include real estate factors,financial market development factors,income inequality factors,economic growth factors,social security factors,and demographic factors.The empirical results reveal that the age of the household head,marital status,income level,the degree of financial development in the region,and income inequality are negatively correlated with the household leverage ratio;while family insurance,family size,consumption level,and local housing prices are positively correlated with the household leverage ratio.At the same time,household investment preferences have heterogeneous effects on household leverage.Financial and operational investments significantly increase the level of household leverage,while an increase in the proportion of housing asset investment reduces the household leverage ratio.Compared to being rejected by traditional financial institutions,the sense of embarrassment caused by being rejected by relatives and friends is stronger,resulting in higher psychological costs of borrowing and a smaller impact on the leverage ratio.Conversely,the sense of embarrassment caused by being rejected by traditional financial institutions and internet financial institutions is lower,resulting in lower psychological costs of borrowing and a greater positive impact on the leverage ratio.This article further explores the different effects of the factors influencing household leverage in heterogeneous groups.Third,this chapter explores the growth effect of household leverage from theoretical and empirical perspectives.Through theoretical analysis,this chapter uses panel fixed effects models with provincial data from 2000 to 2022 to empirically examine the growth effect of household leverage.The empirical results indicate that household leverage has a positive stimulating effect on economic growth at a significance level of 1%,but it has a negative relationship with the growth rate of economic growth.This article further explores the consumption mechanism,industrial mechanism,private sector investment mechanism,and real estate mechanism that affect macroeconomic growth,and uses a time-varying parameter vector autoregressive model(TVP-SV-VAR)to investigate the time-varying impact of household leverage on economic growth.It analyzes the impulse response of macroeconomic variables to fluctuations in the household leverage ratio at equidistant time points(1 year,2 years,and 4 years lag)and specific time points(the "leveraging" period and the"deleveraging" period).The analysis results show that household leverage has a positive impact on household consumption;the volatility of household leverage in the short term leads to a decline in industrial development,but in the long term,this effect gradually diminishes;the increase in household leverage has a positive stimulating effect on private sector investment in the long term;the initial response of the real estate sector to changes in household leverage is relatively small,but a positive response appears in the later stage.Overall,these four transmission mechanisms are consistent.The impact of household leverage on macroeconomic growth in the long term is positively stimulating,and the impact of household leverage on the quality of economic growth has time limits and time-varying characteristics,which are highly related to the macroeconomic background.Fourth,this article investigates the income effect of household leverage from theoretical and empirical perspectives.The article first theoretically analyzes the income effect of household leverage and then empirically studies the income effect of household leverage based on data from the China Family Panel Studies(CFPS)in 2014,2016,and 2018.The research results show an inverted "U-shaped" relationship between household income and leverage ratio.Household leverage affects household income through two channels:improving household business planning to promote income growth,and increasing the level of financial investment,which in turn increases the vulnerability and uncertainty of household income and leads to a decrease in income.According to the results of heterogeneous regression analysis,the inverted "U-shaped"relationship is more pronounced among individuals with higher education levels,households in eastern regions,and households with medium to high income levels.Finally,this article further discusses the relationship between household leverage and income risk.As leverage increases,household income risk significantly increases.The research conclusions provide reference value for households to control leverage rationally and improve their wealth level.Fifth,this article investigates the inter-sector risk contagion effect of household leverage from theoretical and empirical perspectives.Using the National Balance Sheet compiled by the Chinese Academy of Social Sciences(2000-2019),this article constructs a contingent claims analysis(CCA)model and a network of inter-sector asset-liability correlations to explore the mechanisms and impacts of leverage ratio changes on inter-sector risk contagion.Furthermore,this article quantitatively studies the inter-sector risk contagion mechanism of household debt leverage changes,including model parameter estimation,construction of inter-sector asset-liability correlation matrices,and scenario simulations under household debt leverage changes.The scenario analysis results show that the default risk of the household sector will impact the risks of other sectors through a network shock model.With the increase in transmission rounds,the distance between default risks of different sectors decreases,but the rate of decrease gradually diminishes.Among them,the increase in household debt risk has the largest impact on non-financial sectors and financial sectors,leading to a decrease of 22.0%and 26.8%respectively.The transfer of leverage among different sectors of the national economy changes the macro-financial network structure.Through leverage transfer among sectors,the distribution of systemic risks in the macroeconomic system among various sectors changes significantly.The leverage ratio of the household sector has a positive spillover effect on other sectors,enhancing the stability of the macro-financial network.Finally,this article explores and compares the risk contagion evolution of household leverage under different economic conditions.During the economic upturn,the changes in default distances among sectors are relatively small,but during the economic downturn,the changes in default distances among sectors are relatively large.Given the current background of the rapid increase in household leverage in China and the implementation of the "three reductions,one control,and one supplement"policy,this article systematically studies the factors influencing the formation of household leverage and its macroeconomic effects.It enriches the theoretical research on household leverage issues,provides decision-making ideas for the reasonable control of household leverage levels in China’s subsequent development,and is of great theoretical and practical significance for preventing household debt crises and maintaining financial system stability in China.