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Falling Real Estate Market and Illegal Cryptocurrencies in China

In: Finance, Forex

Home prices in China have been falling since September, Chinese stocks and mutual funds aren’t great bets these days either, there’s little access to international markets and cryptocurrencies are officially illegal. Instead, people are increasingly shelving their money in savings accounts, despite benchmark deposit rates staying at record low levels.

Harry Kong, a bank executive in Shanghai, said his stock-market gains from last year have all been erased. He said he is the most pessimistic he’s ever been in 20 years of investing in stocks.

Kong and others in China are living through one of the most difficult and uncertain environments to plan for the future, as Covid-related restrictions ensnare most of the country’s biggest cities with no certain end in sight.

“No matter if you’re high net-worth or not that rich, the golden time of parking your money and letting your wealth grow, it’s gone,” said Wei He, an economist at Gavekal Research Ltd. in Beijing.

“There’s no other investment options,” said Clawde Yin, a 45-year-old Shanghai resident. “I’ve got no choice but to wait and see.”

Nearly 90% of Yin’s savings are tied up in real estate, with the rest in stocks. Despite the uncertainty in the property market, Yin said he wouldn’t try to shift more of his wealth into stocks for now. To Yin, either option is susceptible to snap government policy changes.

That sentiment helped push savings deposits at China’s banks to 109.2 trillion yuan ($16.3 trillion) at the end of April. Deposits in China — which already has one of the highest savings rates in the world — increased 7% in the first four months of the year, compared with 5.5% for the same period last year.

In the past few decades as China’s economy developed and boomed, buying a house for its value to increase was the surest way for Chinese from most socioeconomic classes to invest for the future, considering the country’s underdeveloped pension system. Over 70% of China’s wealth is tied up in real estate.

But that view has been turned on its head in the past year as the government tried to tamp down excessive borrowing and speculation in the housing market. The sector was rocked by a string of defaults by major developers including China Evergrande Group, which shook investor confidence and set off a fall in the sale prices of new homes. Property-loan growth also slowed to the slowest pace on record at the end of March.

Beijing has been trying to develop China’s capital markets, and a curb in property speculation could potentially allow more money to flow into stocks or other financial products in the long term. But it’s unlikely to be an immediate effect of the current environment for wealth generation.

Tight capital controls also makes it difficult for the average Chinese to move large amounts of money overseas for opportunities, and scarce knowledge of foreign markets also limit the desire to invest there. Although people in China can invest in foreign stocks through government-approved funds, in many cases, the everyday Chinese retail investor may not know where to even start.

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