STOCK investments: down 30 per cent. Salary package: down 30 per cent. Investment property: down 20 per cent. Now, middle-class households are being forced to rethink their money priorities, with some pulling away from investing, or selling assets to free up liquidity.
At the heart of the decline in family wealth is China’s real estate meltdown, which having a pervasive effect on a society where 70 per cent of family assets are tied up in property. Every 5 per cent decline in home prices will wipe out 19 trillion yuan (S$3.6 trillion) in housing wealth.
While China’s official data show just a mild drop in its existing home prices, evidence from property agents and private data providers indicate declines of at least 15 per cent in prime areas in its biggest cities.
The housing sector’s value may shrink to about 16 per cent of China’s gross domestic product by 2026 from around 20 per cent of GDP currently. This would put about five million people, or about 1 per cent of urban workforce, at the risk of unemployment or reduced incomes.
Financial investments offer little respite. Chinese shares underperformed emerging-market peers by the widest margin since at least 1998 earlier this month. Mutual funds were in the red as of the third quarter. Yields on banks’ wealth management products remain subdued and deposit rates have seen three reductions in the past year.
The US$2.9 trillion trust industry, where wealthy Chinese investors have sought high returns from products sold by loosely regulated shadow banks, is showing cracks, with one recent scandal potentially involving tens of billions of US dollars in losses.
Net worth per adult in China slid 2.2 per cent to US$75,731 in 2022, UBS said in its August global wealth report, while total assets per adult fell for the first time since 2000 as non-financial holdings shrank due to the housing market difficulties.
Even high-net-worth individuals are turning more conservative, according to a joint survey by China Merchants Bank and Bain & Co. The number of the cohort citing “wealth protection” among their major money goals jumped significantly in 2023, and mentions of “wealth creation” decreased.
Peter Bao, who works at a big technology firm in Beijing, is following a prudent investment
