China’s real estate crisis is hitting household wealth hard. Shen Qilai/Bloomberg via Getty Images
Stock investment: 30% decrease. Salary package: 30% down. Investment property: 20% decrease. When Thomas Zhou looks back on his 2023, finances are on his mind.
“It’s really heartbreaking,” said the 40-year-old financial worker from Shanghai. “The only thing that still drives me is the desire to continue working so I can support my large family.”
Mr. Zhou’s plight will resonate with many in China, where a downturn in the real estate and stock markets is wiping out household wealth. And the threat of job losses is also growing as the world’s second-largest economy struggles to regain momentum after years of coronavirus lockdowns.
Middle-class households are now being forced to reconsider their financial priorities, with some pulling back on investments and selling assets to secure liquidity.
At the heart of the decline in household wealth is China’s real estate meltdown, with far-reaching implications for a society where 70% of household wealth is tied up in real estate. According to Bloomberg Economics, for every 5% decline in home prices, 19 trillion yuan ($2.7 trillion) of housing equity is wiped out.
“This may be just the beginning of even more wealth being lost in the coming years,” said Eric Chu, an economist at Bloomberg Economics. “Unless there is a large bull market, small increases in financial assets are unlikely to offset losses in housing equity.”
While China’s official data shows only a modest decline in existing home prices, evidence from real estate agents and private data providers points to declines of at least 15% in prime locations in the largest cities.
The value of the housing sector could shrink to about 16% of China’s gross domestic product (GDP) by 2026, from about 20% now, according to Bloomberg Economics. This would put about 5 million people, or about 1% of the urban workforce, at risk of losing their jobs or losing income.
Wet day
There is little rest in financial investing. Earlier this month, Chinese stocks underperformed emerging market stocks by the widest margin since at least 1998. The investment trust was in the red as of the third quarter. Yields on banks’ wealth management products remain low, and deposit rates have been cut three times in the past year.
The latest scandal has caused cracks in China’s $2.9 trillion trust industry, where wealthy investors have sought high returns on products sold by loosely regulated shadow banks, resulting in tens of billions of dollars in losses. may appear.
China’s net worth per adult in 2022 fell by 2.2% to $75,731, according to UBS’s August World Wealth Report, while total wealth per adult declined due to housing market difficulties. It said it was the first decline since 2000 due to a decline in financial asset holdings.
Media worker Echo Huang has seen the value of her investment property in Ningbo, Zhejiang province, fall by about 1 million yuan from its peak in 2019. I now consider myself lucky to have sold in May before prices fell further.
Hwang gave most of the proceeds from the real estate sale to his parents for retirement savings, and put the rest in demand deposits or money market funds with immediate redemption. She excluded her stock investments because her current holdings were enough to wipe out all gains since 2018.
“My company is struggling to survive, so someday I might take a pay cut or be laid off,” said the 39-year-old. “My main goal is asset stability and I like to have enough liquidity on hand.”
wealth protection
According to a joint study by China Merchants Bank and Bain & Company, even the wealthy tend to be conservative. The number of people who listed “wealth protection” among their main financial goals increased significantly in 2023. References to “wealth creation” decreased.
Peter Bao, who works for a major technology company in Beijing, follows a prudent investment strategy.
His holdings, mainly in U.S.-listed Chinese stocks, have at one point halved from their peak in late 2020 to the equivalent of about 5 million yuan. Over the past two years, he has moved some of his assets into money market funds and fixed income products that require less analysis. He expects the company to be able to withstand short-term volatility and potential losses.
“There is no moment without anxiety or doubt, but there is no better option,” Bao said. “I also need to focus on my job to protect my income source, so I can’t take any more time to consider other reliable investments.”