In April, the Peoples Bank of China released a financial survey of 30,000 urban households conducted in 2019. A summary of the results by 21st Century Business News showed that the average urban family in China had assets of 3.179 million yuan (about $454,000), debt of 512,000 yuan ($73,000), and a fat net worth of 2.89 million yuan ($381,000).
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Source: Peoples Bank of China 2019 urban family financial survey. |
How did Chinese families get so rich? Mainly by investing in real estate. Housing accounted for 59 percent of asset value owned by urban Chinese families. In fact, housing is pretty much the only sure path to wealth for the average person in China. The Peoples Bank of China survey reported that 96 percent of families were home owners. According to the survey, the average family owned 1.5 houses. Thirty-one percent of families owned 2 houses and 10.5 percent owned 3 or more houses. Personal experience suggests that these extra houses are mostly rented out, so these statistics infer that about 40 percent of Chinese urban residents are landlords.
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Source: Peoples Bank of China 2019 survey of urban family finances. |
In comparison, the average home ownership for U.S. families reported by the Fed's survey was a much lower 64 percent. A Boston Federal Reserve study of the Fed's survey reported that housing accounted for 30 percent of U.S. family assets, and financial assets made up 40 percent. Fourteen percent of U.S. families owned two or more homes, far less than the 41 percent of urban Chinese families owning multiple homes.
The Peoples Bank survey found that 56.6 percent of urban Chinese families have debts. In parallel with the dominance of housing on the asset side of the balance sheet, home mortgages accounted for 75.9 percent of the debt. A higher proportion of U.S. families have debt (77 percent), but mortgages also account for 75 percent of U.S. family debt.
Today's elderly benefited from the gifting of state-owned apartments that kicked off the housing boom in the 1990s when they were in their prime. Today's young folks have to come up with massive down payments and take on hefty loans to get into the game.
The top 20 percent of urban Chinese families (ranked by debt) have 61 percent of the debt. Young families headed by people aged 26-35 years old are the most likely to have debt (73 percent), while those over 65 are the least likely to have debt (25 percent). The amount of debt by age group was not reported. 21st Century Business News commented that middle-aged and young families are under heavy debt pressure, while older households were most inclined to invest in risky assets like asset management products and trusts. The paper commented that some families with few assets are at risk of insolvency. Most mortgages are borrowed from banks, but family businesses and those with few assets often borrowed from informal lenders.
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Source: Peoples Bank of China 2019 survey of urban family finances. |
U.S. data show that the share of assets held by the top 10% of U.S. households rose from 55 percent in 1989 to 64 percent in 2019, but that's not surprising for a capitalist country. While the family wealth distribution in urban China--47 percent owned by 10 percent--is less unequal than in the United States, it's almost the same as it was in the United States in 1989. What's the point of having a socialist economy if wealth accumulation by the rich is not that different from inequality in one of the world's paragons of capitalism?
Moreover, the degree of inequality in China is greater than the survey indicates because it excludes rural people and rural-urban migrants, and it captures less than 30 percent of China's assets.
If the home ownership rate is 96 percent and families own 1.5 houses on average, who exactly is living in all those houses? They are rented out largely to migrants from the countryside and other cities. Nearly all migrants live in rented rooms or dormitories provided by employers. An older survey with a broader sample found a lower 85-percent home ownership rate for urban Chinese families. The distribution of wealth in China would be even more skewed if the rural and migrant population were included in the statistics.
The biggest share of China's real estate wealth was generated by expropriating rural land. Villages were often paid compensation based on the value of grain crops the land could produce. Then the land was reclassified as urban land, and high rise buildings worth millions were constructed and sold off.
This survey covers only a sliver of China's national assets. Another survey by the Chinese Academy of Social Sciences found that family assets were only 30 percent of China's total asset value. Banks had 30 percent, nonfinancial enterprises had 28 percent, and government had 12 percent of assets. Families have minimal stakes in the other 70 percent of China's assets since they own few stocks or bonds. These are de facto owned by the tycoons and communist party functionaries who run them.
Financial assets accounted for only 20.4 percent of urban Chinese family assets--about half the share held in financial assets by U.S. families. The survey said that 58 percent of financial assets were owned by just 10 percent of families. Factories, equipment, shops, and other business assets accounted for about 13 percent of Chinese family assets. In addition to having a larger share of their wealth in financial assets, U.S. families also had a larger share of business assets (23 percent) in their portfolio--10 percentage points more than urban Chinese families.
Assets in China--some owned by families, most owned by... |
It was not mentioned in the survey, but one of the most popular ways of utilizing this great wealth is to sell one of the houses to raise cash to educate the family's child overseas. The education typically takes place in North America, Australia, the UK, or New Zealand, with plans for the offspring to take up permanent residences in one of the English-speaking bastions of capitalism, and hopes of family visas for parents down the line.
5 comments:
Are you comparing China urban households to all US households or just US urban households? And what percentage of China households are urban of all China households? I am trying to understand how to think about this across all of China and the US.
The China survey includes only urban households, and apparently just those with urban residence (hukou). This is probably 40-50% of China's population.
The U.S. survey appears to cover the entire population. Home values in the United States are relatively low, especially in rural areas.
A truly apples-to-apples comparison would be difficult. Are families in Beijing really more wealthy than American families because they own a 500 square-foot apartment worth $1 million?
Interesting article - thanks for sharing. In terms of immigration, I found that most of the students study oversea have the tendency to return back to China for work. Migrating to different country tend to be decided by the family head rather than bottom-up.
Please comment on:
96 percent of families were home owners. According to the survey, the average family owned 1.5 houses. Thirty-one percent of families owned 2 houses and 10.5 percent owned 3 or more houses. Personal experience suggests that these extra houses are mostly rented out, so these statistics infer that about 40 percent of Chinese urban residents are landlords.
If 96 percent one hitter homes who are the 40% renters?
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