Property Accounts for Excessive Share of Chinese Household Wealth, Investments Lack Diversification

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A new report points to a range of problems with household wealth management in China’s urban centres despite roaring growth in average assets since the start of the decade.

China Guangfa Bank and the Southwestern University of Finance and Economics (SWUFE) jointly released the 2018 Urban Household Wealth Report” in Beijing on 17 January.

According to the report household wealth management remains in a state of “sub-standard health” despite ongoing rapid growth in the scale of household assets.

The report points out that average household assets increased from 970,000 yuan in 2011 to 1.503 million yuan in 2017, for compound annual growth of 7.6% over the period.

Average urban household wealth is expected to reach 1.617 million yuan in 2018, with average net assets of 1.542 million yuan, and average investible assets of 557,000 yuan.

Despite this rapid growth since the start of the decade, the report highlights a slew of problems with household wealth management that lead to categorisation of 23 cities as “sub-par.”

Chief amongst them is real estate comprising an excessive share of household assets, crowding out financial asset allocation.

According to the report residential housing accounts for 77.7% of total household assets on average, far higher than the reading of 34.6% for the United States.

Financial assets account for just 11.8% of urban Chinese household assets, as compared to 42.6% in the United States.

A second major problem with household wealth management in China is strong demand for “implicit guarantees” amongst retail investors, with 54.6% of investors demanding comparatively high returns without willingness to risk principal losses.

The third problem highlighted by the report is a preference for short-term bank wealth management products amongst urban Chinese households, and a lack of long-term wealth management plans.

The share of households who preferred wealth management products with maturities of less than 3 months, 3 to 6 months and 6 to 12 months was 35.8%, 37.2% and 33.7% respectively.

A severe lack of investment diversification was the fourth problem with Chinese household wealth management highlighted by the report.

67.7% of Chinese urban households only have a single type of investment product, 22.7% of households have two types of investment products, and just 10.6% lay claim to three or more.

In sharp contrast 61% of US households have three or more investment products.

“For households who face a complex investment environment and lack investment experience, its preferable to actively make use of specialist wealth investment organisations, and enable them to help bring household wealth into order and raise risk-handling capability,” said Xu Shu (徐舒), vice-chair of the SWUFE Chinese Household Financial Survey and Research Centre (中国家庭金融调查与研究中心).

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