This paper puts housing front and center, and very effectively too. --Andrew Baston
From the conclusion:
We find that conventional analysis understates the role of the household sector in contributing to the high investment share of the economy. Our explanation for the imbalances emphasises the role played by housing market deregulation as one of multiple prolonged positive productivity and demand shocks to the Chinese economy that simultaneously sustained returns to capital, lifted investment and boosted both private and public saving. While recent discussions stress the need to reform financial markets to foster rebalancing, we argue that rebalancing will probably happen anyway as a natural outcome of dwindling income windfalls from worsening demographics, fading positive productivity shocks and maturing housing markets, all of which helped drive the imbalances in the first place.
And some more details from the body of the piece:
The role played by the deregulation of housing markets in China deserves special emphasis. In 1988, the Chinese constitution was amended to legalise the transactions of land use rights, laying the foundation for private home ownership. Throughout the 1980s and 1990s, most of the housing provided by SOEs to their employees was privatised at a discount to the replacement cost. Mortgages were introduced in 1997, and official mortgage rates were cut five times during 1998-2002 to counter the negative consequences of the Asian Financial Crisis.
The deregulation of housing markets saw residential investment rise sharply starting in the early 2000s to almost 16% of GDP currently. This housing boom stimulated huge capacity-building in many related upstream and downstream industries, including steel, cement, glass, household appliances and financial services. Using data from the 2010 input-output tables and more up-to-date data on value-added, Xu et al (2015) estimate that, directly and indirectly, residential housing accounted for 29.4% of GDP growth in 2013.
It is likely that the housing boom simultaneously boosted growth, investment and saving in China while subtracting from net household income (through higher mortgage payments). The rise of private home ownership in the late 1990s boosted incentives to save by households strongly motivated to upgrade their housing and to build up private assets, while generating higher investment. As discussed, the rise in household investment mostly reflected individual investment in residential construction. The property investment booms in the 2000s further boosted land sales proceeds accruing to local Chinese governments, helping to fund investment in infrastructure. At the same time, the steady rise of mortgage loans as a share of total credit (reaching 12% in 2014) implied larger interest payments by home-buyers to financial institutions and a corresponding fall in households’ net property income. In turn, this contributed to the decline in the household share of income in the 1990s and 2000s.
The housing boom increased both sales volumes and prices, lifting corporate earnings and the return to capital across many related industries and helping to underpin strong corporate saving and investment until the late 2000s. In sum, the opening of the housing market can be viewed as a prolonged positive demand shock to the Chinese economy, sustaining returns to capital, boosting investment and lifting both private and public saving at the same time.
Win the hearts of China’s damas – the country’s middle-aged and elderly women – and you’ll be well on your way to winning the China market.
Affluent and with plenty of spare cash to invest, China’s damas made the headlines in recent years after they rushed to buy gold in 2013, helping global gold prices stabilise from a sharp sell-off.
This group of Chinese women, who generally possess limited financial knowledge, are being keenly pursued by wealth managers and property agents as they eye China’s promising silver-hair market.
People aged above 60 will make up 39 per cent of China’s population by 2050, compared with the present 15 per cent, according to official data. Damas are often seen in stock bourses, banks and property agencies as they go about their investment decisions in much the same way as they buy clothes in shopping malls and food in the wet markets.
“I have held shares of many enterprises, though I don’t understand their business,” said Yu Liping, a 58-year-old retired woman in Ganzhou, Jiangxi province.
“My investments are all recommended by my friends and I believe in group psychology, which means things bought by many people are a must-buy.”
Yu said all her friends and relatives her age invest. Only the very old people, like those in their 80s, would leave their money in the bank, she said.
“But in China, there are very few investment options, and if others say a financial product is good, I will also regard it as good and join the buyer’s cohort,” she said.
Yu followed her friends in buying shares of a Hunan-based bamboo fibre manufacturer in August last year and is looking forward to the company’s Australia listing next year.
But even as she enthusiastically shared details of that 150,000 yuan investment, Yu also related the woeful tale of having put 100,000 yuan earlier this year into Shenzhen Anzi Group, which was collecting funds from the public to launch its online shopping centre. The group was in July exposed by the Southern Metropolis News for conducting illegal fund-raising and its founder was put under police investigation. Yu has not received her money back from the investment.
Yu also recalled putting 380,000 yuan into shares when the stock market was bullish last year. The stocks’ paper value had since shrunk to just 80,000 yuan, she said
The dama attributed her investment failures to new technologies and concepts such as peer-to-peer financing, trust products and crowdfunding.
“I don’t really know how to use the internet well,” she said.
Even so, Yu and her counterparts are considered financial firms’ VIPs, with wealth managers sparing no effort in maintaining good relations with them.
“Dama usually have a large amount of idle money after having saved throughout most of their lives. In a majority of families, women are the financial controllers,” said Ivan Li, a wealth manager who used to work at a China Merchants Bank branch in Shanghai’s Huangpu district.
“After retiring, these women are free all day and are more willing to invest than young people who are always busy with their work,” Li said.
The wealth manager said at least half of his 400 clients were damas and that the average amount of assets each dama put in his bank came up to half a million yuan.
In dealing with this group of clients, sales workers relied more on their “selling skills” than on professional knowledge, he said.
Last year, the Beijing Evening News reported that a young Pingan Bank accounts manager joined dozens of damas in dancing at a public square in Beijing every evening as a business development tactic.
“Because damas have little knowledge of financial products, sales people should be patient enough to answer their trivial questions,” Li said. “Some aunties spent two to three hours in front of our banks, inquring about our products and chatting with us.”
Xu Jinping, general manager for Fu Hua Asset’s eastern China region, said good sales attitude was an important factor behind many damas’ investment decisions.
The latest Standard & Poor’s Ratings Services Global Financial Literacy Survey found that 63 per cent of Chinese adults who owned a credit card were financially illiterate. The poll measures a person’s financial literacy based on his or her understanding of concepts such as risk diversification, inflation and compound interest.
More than 70 per cent of adults in Asia did not adequately understand these key monetary ideas – higher than the world average of 66 per cent – according to the survey.
“In future, there will be fewer such elderly women who like to invest but are financially illiterate,” Xu said. “The market teaches them lessons and people will become more educated in wealth management.” -- 2015 December 21 SOUTH CHINA MORNING POST