Many Chinese are growing richer but not all are wealthy

With more Chinese travelling and investing globally, their spending habits are notably eye-catching.

Over the past few years, Chinese have appeared to be quite wealthy and its image as a nouveau riche country has risen rapidly in the eyes of the world.

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With more Chinese travelling and investing globally, their spending habits are notably eye-catching.

China’s urbanisation process is changing day by day; its transportation infrastructures such as high-speed rail and highway have been rapidly developed. In the meantime, its foreign investments have also increased.

China’s overall wealth growth is astonishing to many, whether it is the wealth of residents, enterprises or the government.

One might wonder if the Chinese are really that rich, and where is their wealth coming from. The rapid development of China’s economy has caused the country to accumulate a huge sum of wealth. Its total sum in Chinese society is indeed stunning.

No consensus

Many institutions and scholars have studied this but no consensus has ever been reached. A more comprehensive statement would be the report of the China National Balance Sheet for 2018 issued by the National Finance and Development Laboratory of the Chinese Academy of Social Sciences.

According to the report, China’s total social assets were 1,210 trillion yuan and social net wealth was 437 trillion yuan at the end of 2016. From 2000 to 2016, non-financial assets have increased to 424.5 trillion yuan from 37.5 trillion yuan, an increase of 1,032 percent. Financial assets have also increased to 782.6 trillion yuan from 53.2 trillion yuan, up 1,371 per cent.

Material net wealth

At the end of 2016, China’s social net wealth was 437 trillion yuan, which includes the domestic non-financial assets worth 424 trillion yuan and external net assets worth up to 13 trillion yuan.

Seventy-three percent of China’s social net worth was owned by its residents, and the remaining was held by the government.

China’s actual material net wealth is growing rapidly. The material wealth of China residents was approximately 319 trillion yuan at the end of 2016.

The report has also divided the net wealth growth into two parts, including investment growth that accounted for 68 percent and value revaluation that accounted for 32 percent.

Foreign institutions have also made some estimations of the size of wealth among Chinese residents. Based on Credit Suisse’s research, the average wealth of Chinese adults has quadrupled from $22,864 from $5,670 between 2000 to 2016. The total wealth of Chinese households has grown to $23 trillion from $6.3 trillion.

The United States took around 33 years to achieve the same increment.

‘Remarkable growth’

The latest New World Wealth’s Global Wealth Migration Assessment Report states that global private wealth has reached $204 trillion in 2018, which shows a 26 percent increment when compared with 10 years ago.

Among countries, China’s personal wealth was $23.6 trillion in 2018, showing a remarkable growth of 130 percent in just a decade.

China is expected to maintain this trend and it has been predicted that its private wealth growth will reach 120 percent in the next decade.

Chinese-funded institutions such as Haitong’s macro team also made some estimations to the composition and total amount of residents’ wealth, including financial and non-financial assets.

Although there is a huge gap in the estimation with foreign institutions, the evaluation is quite similar with the one by the Academy of Social Sciences.

Haitong’s report stated that at the end of 2018, the total assets of Chinese residents reached 465 trillion yuan, of which the real estate scale accounted for 70 percent of the residents’ total assets, and the financial assets accounted for about 30 percent.

Varying estimates

As of the end of 2018, the deposit size among the financial assets of Chinese residents was about 72.4 trillion yuan, accounting for 52 percent of the residents’ financial assets and 15.6 percent of the residents’ total assets, respectively.

Although the estimations vary widely among institutions, they have all concluded that China is the leading country in accumulating wealth. This is the reason why China appears to be wealthier by day. Besides that, the ability of the Chinese in earning money has also contributed to the rapid growth of their wealth.

Statistics show that China’s gross national product has risen 222 percent, to $13.2 trillion in 2018 from $4.1 trillion in 2008. Based on this estimation, the increment will bring an accumulation of around 200 trillion yuan of wealth, which indicates the contribution of China’s economic development to the increase in wealth.

Currency, credit rise

Furthermore, the expansion of currency and credit has undeniably attributed to inflation of asset value in China. There was an increase of 283 percent in China’s currency supply, which rose to 182 trillion in 2018 from 47.5 trillion in 2008.

Currency issuance has brought up credit expansion and asset bubbles. In particular, the rapid increase in China’s real estate prices has also magnified the bubble of Chinese’s wealth.

The price of real estate in China is based on a one-time 70 years of land transfer fee. Since the land transfer fee is levied for 70 years, this is equivalent to reforming through fiscal transfer.

Therefore, their current focus is to accumulate wealth on these 70 years, which corresponds to 70 times of wealth expansion. This implementation is conducive for real estate assets expansion as well as wealth accumulation.

According to Haitong’s estimation, if Chinese residents have 325 trillion yuan in real estate wealth, half of it should be from the inflation of a real estate bubble.

Overseas listings

The capital market in China is also an amplifier of wealth. Compared with China’s stock market value of only three trillion yuan to four trillion yuan in 2000, the total market capitalisation in China has gone up to 50 trillion yuan, with more than 3,000 A-share listed companies at the end of 2018. In addition, the New Third Board has more than 10,000 companies, of which 95 percent are private enterprises.

There are still plenty of Chinese companies being listed overseas, including Tencent Holdings Ltd and Alibaba Group Holding Ltd, with more than 1.5 trillion yuan in market value.

The capital market has greatly expanded the wealth of entrepreneurs, corporate executives and investors.

The large population base in China, including the huge number of middle class people, has also reflected the wealth of its residents.

Spending power

Many Chinese and foreign scholars observe there is a certain divergence between the income and consumption of Chinese residents. According to disposable income statistics, the Chinese should not be able to afford such a large amount of luxury goods, estates and overseas travel.

It is unquestionably true that the increase in Chinese spending power is real, but it is all related to a huge population base in China.

With a population of nearly 1.4 billion, there are more than 270 million people in the high-income group, and that is 20 percent of the whole population.

Meanwhile, China’s middle class has around 109 million people. This is the world’s largest in terms of absolute value, according to Credit Suisse’s report.

In 2018, China’s outbound travel also exceeded 100 million. Although the ratio of high end and middle class population to the total population base is not high, the scale of the population is enough to give an impression that all Chinese residents are rich.

Final analysis conclusion:

China’s incomes and consumption power are growing rapidly at all levels in terms of comprehensive income growth and asset expansion. With the huge population base of the middle class in China, it gives an overall impression that all Chinese are affluent.

The revaluation effect of asset value in the capital era has further promoted the illusion that “Chinese are rich”.

ANBOUND Malaysia is part of Anbound China, a leading independent think tank based in Beijing. The think tank is also a consultancy firm working with corporate players in China-Asean cooperation

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