The wealth of the middle class in China is melting away rapidly

China’s middle class has been expected to become a growing engine of the global economy next to the American consumer, but the growth has been slowed not only by the general uncertainty created by the COVID pandemic, from which recovery has been slow, but also by wealth melting away. The Helsinki stock exchange has performed poorly this year, but China’s Shanghai Composite is also in the red, so Chinese households that have invested in the domestic stock exchange have not performed too well.

A larger chip in wealth is created by housing to which the majority of Chinese people's wealth is tied, 70% according to Bloomberg’s estimate. The prices of new dwellings fell by 0.3% in November month-on-month, which is the biggest drop since 2015. The decline in prices of old dwellings was steeper, and the figures become even uglier when you look behind official statistics. According to Bloomberg’s data, housing prices in large cities would have dropped by 15% from a year ago when looking at the figures of real estate agents and the private sector in general.

The change is huge when you examine it in more detail. According to Bloomberg’s calculations, the value of the real estate market could fall from the current 20% of GDP to 16% by 2026. The market change would expose 5 million employed people, or about one percent of China’s urban workforce, to unemployment or falling incomes. As wealth is dwindling and the future seems uncertain, especially for those working in the real estate sector, it is natural that the Chinese are now protecting their capital and have moved their consumption further into the future. If a change for the better is not seen in the development of housing prices, a heavy stock market rally would be needed to restore the confidence of the Chinese people in wealth development recovery. There does not seem to be many prospects for this at the moment.