China’s Middle-Class Wealth Trapped in Real Estate

The wealth of China’s middle and lower-middle class is locked up in the country’s increasingly risky real estate market, according a study by Renmin University of China. At a press conference held at the Analysis and Forecast of Macroeconomic Performance of China 2018–2019 conference, held in Beijing, the report by National Academy of Development and Strategy of Renmin University indicated that the debt rate of destocking in real estate for Chinese consumers rose sharply and that the consumption base has been severely weakened. At present, the wealth of residents is basically tied to property. According to the analysis, the phenomenon of having assets locked up in real estate was mostly limited to the upper-middle class prior to 2015. But a new round of property market destocking—in particular, monetization and encouraging migrant workers to buy houses—has driven members of the class with less liquid savings to invest as much as possible in real estate. Today, the core drivers of consumption are not members of the high-income class, but Chinese of middle- and lower-middle class income. However, money available for consumption by this demographic has diminished greatly, which is important in accounting for the shift in Chinese consumer behavior. Another significant change was that residents’ net savings have continued to decline. According to financial data released by the People’s Bank of China, as of September, the net savings of residents (deposits minus loans) amounted to about 24.7 trillion yuan ($3.56 trillion), falling 6.7 percent from 2017. From 2016 going into 2017, it dropped 6.3 percent. Data on GDP across China’s 31 provinces and real-estate development investment data in the first three quarters of 2018 also was released on Nov. 24. The data shows that provincial economies depend on real estate.