Dragoman Digest

China’s household debt crisis exposes vulnerabilities in its financial system

Hidden personal loan failures threaten banking stability and sustainability of household consumption

China’s personal lending market is facing its gravest crisis since 2008. Total household loans stand at 82.84 trillion yuan (US$11.4 trillion), with an increasing portion slipping into delinquency. While official non-performing loan (NPL) ratios hover at 1.5 percent, bank managers are personally pleading with borrowers to “just pay the interest” to prevent defaults. The first quarter of 2025 saw personal NPL transfers – banks selling bad debt to asset management companies – surge to 37.04 billion yuan (US$5.1 billion), a 760 percent increase year-on-year. This hidden debt crisis encompasses mortgages, consumer loans, credit cards and, most critically, small business loans that are technically classified as personal debt.

The growing personal debt distress has triggered the involvement of state-owned distressed asset management companies (AMCs) such as China Cinda. Traditionally focused on corporate debt, Cinda entered the personal NPL market for the first time in 2024. Banks are exploring various disposal channels, including bulk transfers and asset-backed securitisation (ABS). ABS enables banks to sell packaged distressed loans to investors, spreading risk. By the end of 2024, banks had issued 530 ABS products tied to distressed retail loans covering 1.18 trillion yuan (US$160 billion). These mechanisms are not a panacea. Mortgages and collateralised loans remain excluded from bulk transfers, while personal NPLs are trading at just 4.1 percent of face value.

Regional and sectoral disparities reveal China’s highly uneven economy. Smaller cities face acute credit stress as declining populations and housing oversupply drive mortgage defaults. Small businesses in service sectors – restaurants, gyms, beauty salons – have struggled as China’s stimulus programmes favour manufacturing over services. The judicial system is unable to handle the millions of retail debt cases, forcing banks to prioritise the most egregious cases – those involving fraud. Without fundamental changes like the introduction of personal bankruptcy laws, neither banks nor AMCs can reduce the loan’s principal. These challenges leave the system trapped between mounting defaults and inflexible regulations. The personal debt crisis compounds China’s other economic woes – depleted provincial finances, the property market collapse, and shadow banking risks – ultimately constraining President Xi Jinping’s policy options.

The EU Commission enhances efforts to phase out Russian gas

Hungary and Slovakia will likely vigorously resist any cuts to Russian fuel supply

The EU Commission plans to propose rules next month requiring EU companies to disclose details of their gas contracts with Russia. Under this arrangement, companies would be obliged to report the volumes and durations of contracts to both the Commission and relevant national authorities. Despite a significant reduction in Russia’s overall gas exports to Europe, LNG deliveries from Russia have remained more resilient. Russia now accounts for nearly 17 percent of the EU’s LNG imports, up from 12 percent in 2023. This initiative is part of a broader EU strategy to phase out Russian gas entirely. The EU will specifically aim to ban new spot market contracts by the end of 2025 and phase out long-term contracts by 2027. The Commission insists that sufficient alternative capacity to Russian gas will become available next year, likely involving increased volumes of LNG procurement from the US.

While a marked reduction in EU gas demand theoretically provides space for stricter policy on Russian gas, significant challenges remain. Member states Hungary and Slovakia, which rely on Russian gas for approximately 80 percent of their supply (primarily via the TurkStream pipeline), have rejected the EU’s call to phase out Russian gas. These countries, both governed by political parties more sympathetic to Russia, have consistently opposed energy sanctions.

The ban would typically require unanimous approval from all EU governments, which Hungary and Slovakia are sure to block. The two EU member states are part of state-to-state deals with Russia that are central to their relationship. The Commission is suggesting a workaround to this barrier, aiming for a weighted majority vote with a proposal expected in June. The thinking in Brussels is that the threat of sanctions would allow companies to void contracts without legal penalty through invoking force majeure” clauses. Many close to the industry remain deeply sceptical that these measures will prove legally workable. The US LNG industry is watching developments very closely. A successful phaseout of Russian gas could provide the impetus for FID on up to US$120 billion worth of LNG projects in the coming years.
 

Nigeria’s power deficit threatens growth prospects

Energy challenges continue to act as a handbrake on economic development in continent’s most populous nation

Nigeria has 90 million people without electricity – more than any other country globally. This scarcity undermines its economy in ways that extend beyond simple capacity shortfalls. While Nigeria’s national grid has six gigawatts of capacity (for 228 million people), South Africa has built out 48 gigawatts for just 63 million people. Even Bangladesh, poorer than Nigeria until recently, generates 16 gigawatts for 170 million citizens.

Misaligned incentives and policy failures have created feedback loops that now actively prevent infrastructure improvement and entrench energy poverty. Gas plants operate at half capacity because regulated fuel prices mean that they are unable to pass on costs. Meanwhile, utilities face endemic payment issues starving them of maintenance revenue. Deteriorating service then justifies further non-payment, creating a self-perpetuating cycle. Not even the presidential villa has proved immune from these issues, with the property being threatened with disconnection over arrears.

Private power generation offers immediate relief but has so far only added to the decline of the country’s grid. Nigerians spent US$10.3 billion on off-grid solutions in 2023. This figure is equivalent to 60 percent of the government budget, with private generators producing twice the grid’s output. Over half of manufacturers have abandoned grid connections entirely, treating unreliable power as a fixed business cost. The installation of private power solutions like solar panels can provide temporary relief, but concentrates grid maintenance costs among remaining users, typically poorer households. The Nigerian government’s reform efforts remain incomplete. Renewables’ integration has been challenged by proposed solar panel import bans, and over half of distribution companies privatised in 2011 went bankrupt. A Germany-Siemens partnership to add 12 gigawatts has stalled. Unless these dynamics are reversed, Nigeria risks both permanent energy inequality and structurally handicapped economic growth.

Washington eyes critical minerals deal with the DRC

A deal would provide the US with an opportunity to counter Chinese dominance in the region but faces potentially prohibitive obstacles

The US is evaluating a potential critical minerals partnership with the Democratic Republic of Congo (DRC). This partnership was first raised by Congolese President Felix Tshisekedi back in February and formally proposed in a letter to US Secretary of State Marco Rubio in March. The proposed pact is expected to grant US companies privileged access to minerals essential for the global energy transition and could include "exclusive" extraction/export rights, participation in a deep-water port project, and the creation of a joint strategic minerals stockpile. The DRC produces 70 percent of global cobalt output and has possibly significant deposits of lithium. Unlike Ukraine which has few operational mines, the DRC is evidently already a major mining jurisdiction. The US concluded a deal with Ukraine on April 30.

The Congolese government is attempting to make some form of US security assistance a precondition for any minerals deal. The eastern provinces of the DRC are embroiled in active conflict, with Rwandan-backed M23 rebels exercising control over key regions including North and South Kivu. The February 2025 capture of Goma and Bukavu by M23 has severely disrupted several mining operations, including major tin mines. Erik Prince, the controversial founder of the US private military contractor Blackwater, struck a deal with the DRC government in April that will aim to tighten tax collection and crack down on cross-border smuggling. It is unclear if President Trump, who has expressed extreme wariness around foreign military entanglement, would be willing to provide more direct forms of security assistance. Widespread perceptions that ruling elites and foreign companies are the only beneficiaries of mining have helped perpetuate endemic conflict throughout the DRC’s history. A sustainable peace that would provide greater security for miners is unlikely in the absence of broader intra-Congolese power and wealth sharing arrangements.

China’s entrenched dominance in the DRC looms as another potential obstacle. Beijing owns the largest cobalt assets in the country and inked a US$7 billion infrastructure-for-minerals pact with Kinshasa in October 2024. In response, Washington has pledged to mobilise over US$10 billion to develop the Lobito Corridor, a western transport route that would bypass Chinese-controlled logistics chains and reroute Congolese metals toward Atlantic ports and US-aligned markets. Beijing will likely pushback strongly against any deal which dilutes its presence or access to future mining opportunities.