GLG Chinese Economic Household Trendsfinal

8/10/2019 GLG Chinese Economic Household Trendsfinal

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2014 GERSON LEHRMAN GROUP, INC. ALL RIGHTS RESERVED.

October 10, 2014

CHINESE HOUSEHOLD

ECONOMIC TRENDS

Li Gan, PhDProfessor of Economics, Texas A&M University


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Li Gan

Li Gan is a Professor of Economics at Texas A&M University and Dean of School of Economics atSouthwestern University of Finance and Economics. He is also the Director of the China HouseholdFinance Survey, the only nationally representative survey in China that has detailed informationabout household assets, including housing, business assets, financial assets, and other householdassets.The survey also has information on income, expenditure and social and commercialinsurance. So far, this survey is only resource about household wealth in China. He holds positionsat the National Bureau of Economic Research and the Private Enterprise Center, and his researchhas focused on Chinese consumption, banking, environmental policies, income inequality, andhousing. His work has been cited in articles published in The Economist, CNN, Science, and majoracademic journals. He holds a PhD in Economics from the University of California Berkeley and aB.E. from Tsinghua University in Beijing.


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Chinese Households

Economic Trends

Li Gan

Texas A&M University and SouthwesternUniversity of Finance and Economics

Oct, 2014

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China Household Finance Survey (CHFS)

Income Inequality and Consumption

Vacancy Rates for Residential Properties

Urbanization

Expectations and Economic Trends

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Coverage of CHFS

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Biannual survey: more than 28,142 households and 97,916

individuals, in 1048 neighborhoods, 262 counties, 29

provinces in the country. The sample is representative atboth the national level and at the provincial level.

Quarterly survey: randomly drawn about 5,000 households

from the sample. Nationally representative.

China Household Finance Survey

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Urbanization


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Household Income Gini Coefficient

2010 world average0.44

National Bureau of

Statistics

2010 0.481

2012 0.474

2013 0.473

Overall Urban Rural

2010 0.607 0.577 0.606

2012 0.606 0.572 0.599

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Rising household saving rates

2010 2012

CHFS 29.2% 31.8%

NBS 28.7% 30.6%

Not every family saves.

Proportion who saves

Urban 64.1

Rural 55.6%

Overall 60.6%

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Rich owns almost all the savings.

Saving ratesPercentage of total

total saving

Highest 5% 72.2% 49.2%

Highest 10% 45.2% 62.7%

Highest 25% 42.9% 81.8%

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Various measures to encourage Chinese

consumption had limited success

Chinas poor dont have money to spend

China's rich are already spending what they need, and

pocketing most of the rest.

Unequal income distributions and liquidity constraints cause

insufficient domestic demand.

Improving income distribution would promote economicgrowth.

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Urbanization


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Definition of Vacant Housing

Uninhabited family-owned but not occupied housing in urban areas,

including:

Migrants who own houses but work and live in different cities.

Households who own multiple houses but do not live them nor

have anyone else living in them

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The 2013 vacancy rate was 22.4%. About 49 million units are vacant.

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4.8% 5.1%

15.8%17.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2011 2013

Come from one house family Come from two more houses family

20.6%22.4%

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Commercial and affordable housing have higher vacancy rates

Note: Others include self-built housing ,inherited or gifted housing.

Inventory

Accounting47.3% 4.1% 10.1% 14.5% 4.5% 19.5%

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26.3%23.3%

18.2%

13.5% 9.5%

18.4%

0.0%

5.0%

10.0%15.0%

20.0%

25.0%

30.0%

Commercialhouse

Affordablehouse

Demolitionhouse

Get fromhousingreform

House builtby individual

funds

Others

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Commercial housing: first-tier cities have a lower vacancy rate

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4.2%6.7%

5.0%

14.2%

20.9% 22.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

First-tier cities Second-tier cities Third-tier cities

Family owns one house Family owns two or more houses

27.6

27.6

18.4

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A pressure test reveals a substantial risk for Chinas housing market

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4.0% 6.6%7.6%

10.4%

14.2%

18.8%

24.2%

5.4%

17.1%20.2%

28.0%

36.3%

42.3%

49.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Current Housing prices fall

by 5%

Housing prices fall

by 10%

Housing prices fall

by 20%

Housing prices fall

by 30%

Housing prices fall

by 40%

Housing prices fall

by 50%

Non-vacant Housing Vacant housing

A comparison of the loss ratio of vacant and non-vacant housing in accordance with

different levels of falling housing prices

Note: The graph refers to a comparison of housing prices that are lower than their purchasing prices.

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According to CHFS

The nationwide housing vacancy rate is 22.4%, or about

50 million units.

Vacancy rate for commercial housing is 26.3%, or about27 million units.

Vacancy rate for social welfare housing is 23.3%or

about 2 million units.

The mystery of the housing vacancy


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Most developers/government officials/researchers may disagree:

Between 2000 and 2010, about 70 million additional families

in the city.

From 1998 to 2013: net increase 70 million units of housing

The aggregate housing demand/supply in urban China areroughly balanced.

Where to find 50 million vacant units?

The mystery of housing vacancy

Completed new construction 10.6 billion square meters

Demolition and reallocation 3 billion square meters

Net increase 70.6 billion square meters


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Urbanization


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Urbanization is normally viewed as migrants who leave their rural

homes to go to urban to work and to live.

Urbanization also includes reclassification of local areas.

If a rural area is reclassified as urban, residents living in the

area becomes urban residents. They are part of the

urbanization.

NBS publishes classification codes for each of all 700,000neighborhoods in China from 2009 to 2013. During this period,

3.8% of neighborhoods are reclassified as urban neighborhoods.

Mystery of urbanization


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Between 2009 and 2013, proportion of urban

neighborhoods has increased from 25.67% to 29.48%

Data Source: NBS

25.67%

26.78%

28.13%

28.92%29.48%

23.0%

24.0%

25.0%

26.0%

27.0%

28.0%

29.0%

30.0%

2009 2010 2011 2012 2013

Proportion of Urban Neighborhoods


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Rural Urban is more like rural.

Percentage ownagricultural land

Percentage inagricultural

work

Percentagewith ruralHukou

Urban before 2009 23.1% 10.5% 38.8%

Rural to Urban in2009-2013

75.0% 53.0% 89.9%

Rural at 2013 78.5% 57.5% 96.4%

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More redefined migrants than relocating migrants

Urban residents

Rural residents

Urban Hukou

Rural Hukou

NewlyUrban

Originallyurban Housing

demolitionaland

requisition

Housingpurchase,schooling,

and

employment

Rural Hukou

Urban Hukou

2.4%

6.0%

RedefinedMigrants

RelocatingMigrants

14.3%

11%

41.9%

3.3%

20.9%

Data SourceCHFS


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% No house% One

house

% Multiple

houses% Rent

Average

square

meters

Urban Hukou 18.1% 67.5% 14.4% 14.6% 25.4

Redefined migrants 10.2% 75.0% 14.9% 7.1% 35.8

Relocating migrants 45.1% 45.8% 9.2% 47.4% 22.2

Rural 6.5% 81.9% 11.6% 7.1% 37.3

Reclassified migrants housing are similar to urban Hukou

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Summary

From 2009 to 2013, 0.95% neighborhoods are reclassified from

rural to urban per year. Residents living in these neighborhoods

are reclassified as urban residents.

People who are urbanized due to reclassification: Their demographics are closer to farmers.

Their work status are closer to farmers than anything else.

Their housing status is closer to city hukoufamilies. They do

not have nearly as much as rigid demand as those who move

to cities.

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Summary

More people are urbanized by reclassification than the

urbanization from those who move to urban areas to work and to

live.

Treating the two types of migrants similarly will lead to asubstantial overestimate of housing demand.

It is likely that the misunderstanding of urbanization may be a

cause of 30 million overbuilt units of commercial housing.

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Urbanization


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Firstquarter

Secondquarter

Thirdquarter

Overall 6.8% 5.1% 5.6%

Migrantworkers

6.9% 4.3% 6.1%

Urban hukou 6.7% 5.7% 5.1%

Unemployment rates for urban residents

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Firstquarter

Secondquarter

Thirdquarter

Urban 19646 20171 19290

Rural 9797 9979 11322

Nationwide 15214 15585 15962

Household Income Change

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Second quarter Third quarter

East 2.1% 1.0%

Central 1.1% 1.1%

West 1.8% 2.0%

Nationwide 1.7% 1.3%

Second quarter Third quarter

East 0.63% 0.35%

Central 0.43% 0.29%

West 0.77% 0.32%

Nationwide 0.61% 0.33%

Percentage of households who purchased houses

Percentage of households who sold houses

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117.4

102.6

100.6

113.5

100.8

93.3

100.5 97.4

90

95

100

105

110

115

120

first quarter Second quarter Third Quarter

Expectation of Housing Price

All households Households with multiple houses

Plan-to-buy households

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Average expectation on housing price is going down but remains

to be neutral at 100.6

Multiple-house families and plan-to-buy families, however, start to

have negative expectation in the third quarter.


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95.792.2

111.5106.4

134.1

156.6

96.4101.8

124.6

90

100

110

120

130

140

150

160

first quarter Second quarter Third Quarter

Stock price expectation

all families

families with multiple houses (no stocks)

families with multiples houses (has stocks)

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Average expectation on stock price turn to positive at third

quarter.

Multiple-house families are substantially more positive than the

rest.


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Summary

Unemployment in the third quarter is worse than the

second quarter.

Expectation on housing and on stocks, especially on

those who own multiple houses and who plan to buy

houses, are quite different.

We expect a reverse of fortune between the housing

market and the stock market soon.

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GLG Chinese Economic Household Trendsfinal