Findings from the China Household Finance Survey

Texas A&M University and Southwestern University of Finance and Economics Li Gan September 2012
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Data Collection

http://chfs.swufe.edu.cn/

Overview
Demographic characteristics and labor market

Assets and liabilities Non-financial assets Family business Land and real estates Vehicles Other non-financial assets Financial assets Social and Commercial Insurance Expenditure and non-labor income
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Overview
Financial assets (continued) Checking CD Stocks Bonds Mutual fund Derivatives Financial wealth-management products Non-RMB assets Gold Cash Lending

Sampling and Implementation

232 people in 41 groups were sent to each of the 320 communities to draw detailed maps for all houses/apartments in the community. The detailed map serves as our sampling frame. Total 343 interviewers in 32 groups were sent to the communities to do faceto-face interviews.

Sampling and Implementation

Help from local branches of Peoples Bank of China (and NORC/Fed). Tremendous help from local communities. Training: 56 hours per interviewer. Implementation Design: -Only after six refusals at different time periods, the sampled household is allowed to be dropped. -Working as a group reduces moral hazard. - Very strict privacy design. Dedicated and innovative interviewers. Chinese people are more supportive than we originally expected.

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Low Refusal Rate

Project CHFS Time 2011 Non-response Rate Overall11.6% City16.5% Rural3.2% Overall15.2% City20.7% Rural10.1% Regular sample30% List sample67%
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CHARLS (Chinas HRS) Survey of Consumer Finance

2008 Pilot 2010

Sampling and Implementation

A unique design to correct sampling bias: Interviewer Observation For all randomly drawn households, including those who refused to be interviewed, a section of information to be filled out by the interviewers: location where, and how far to the nearest city center type of the building and price of the house community information

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Comparing CHFS to NBS data

Items Urban resident ratio (2011) Urban Hukou ratio Per capita income rural (2010) Per capita income urban (2010) NBS 0.513 0.338 (2009) 5,919 RMB 19,109 RMB CHFS 0.514 0.355 (2011) 7,045 RMB 22,196 RMB Difference 0.001 0.017 19.0% 16.2%

Quarterly telephone interviews

We have phone numbers quarterly telephone interviews (CATI). CATI questionnaire includes: Expectations about interest rate, CPI, housing price, stock index. Employment status Financial market participation and earning status Assets: house price, loan, vehicle, debts Income and consumption

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Quarterly telephone interviews

Successfully conducted first-round CATI in April 2012 Currently working on second-round CATI. Benefits of CATI: A timely picture of household economic situation in China. Quickly build-up a panel.

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Main Findings

Finding #1: Inequality of household income and assets in China is much more serious than previously thought. High household saving rate in China is likely caused by income inequality in China.

Implications: Income redistribution has to be one of the key public policies in China.

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Finding #2: China total net household wealth is more than US by 21%. An overbuilt real estate sector and a rising housing price in China and is likely one of the key reasons.

Implications: a likely housing bubble in China.

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Finding #3: China has one of the highest home ownership rate in the world. Residential demand is no longer an serious issue.

Implications: Housing policy should focus on satisfying differential demands by adjusting the structure of housing supply.

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Finding #4: Home owners enjoy substantial capital gains (on paper). Home prices are too high to be affordable to home buyers.

Implications: Policies for affordable housing are necessary. Banks can survive a large percentage drop in prices.

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Finding #5: Very low participation rate of the formal financing sector, but very active informal finance. People are risk averse a large portion of their financial asset is riskless.

Implications: Potential for a tremendous growth of household finance sector in China. Systemic risk may arise from informal financing sector rather than formal financing sector.

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Finding #6: Myth of the size of the Chinese rural migrant workers. NBS two different surveys produce two very different
numbers. CHFS is almost identical with one NBS survey.

Implication: Importance of having independent surveys.

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Finding #1: Inequality in income and assets

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Household Disposable Income (RMB)

Overall Average Median 51,569 17,510 City 70,876 28,800 Rural 22,278 10,580

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Household Disposable Income (RMB)

Overall
25 percentile 75 percentile 90 percentile 95 percentile 99 percentile 4,950 44,554 100,000 172,000 559,000

City
6,420 63,000 137,200 223,527 664,000

Rural
4,294 24,020 50,044 77,500 275,000

Roughly 1.5 million Chinese families disposable income is more than 1 million RMB.

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Close inter-personal relationship: Guanxi

Interpersonal spending City Rural 7,837 RMB 3,818 RMB As a percentage of income 11.1% 17.1% 11.7% Interpersonal income 3,522 RMB 2,120 RMB 2,899 RMB As a percentage of income 5.0% 9.5% 5.6%

Overall 6,051 RMB

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Govt employees Guanxi income

Proportion with inter-personal income Non-Gov employees Gov employees 50.3% 49.7% Proportion from non-relatives Non-Gov employees Gov employees 21.7% 30.4% Amount 2,839 RMB 3,749 RMB
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Income Distribution
Top 10% households Top 5% households in total income in total income Salary Investment Agriculture Business Transfer Inc Total Income 55.6% 67.2% 32.0% 76.9% 43.2% 37.5% 49.2% 24.7% 67.8% 31.0%

57.0%

44.0%
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Distribution of Household Saving

Top 10% income households
Average saving rate: 60.6% Proportion in the total household saving: 74.9%.

Top 5% income households

Average saving rate: 69.0% Proportion in the total household saving: 61.6%

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Income and Saving

About half of the households at the year have more or equal consumption than their income.

The puzzling high saving rate in China is NOT about insufficient consumption but about income distribution. Raising low-income family income is probably the most efficient way of reducing Chinas high saving rate.

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Assets (RMB)
Urban Hukou Financial Assets Non-financial assets Housing assets Total assets Debts Net Assets Average 112k 1,457k 930k 2,476k 101k 2,375k Median 17k 14k 400k 405k 0 373k

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Asset distribution
Assets range Less than 100K Between 100K and 405K Between 405K and 1 million Between 1 mil and -2.47 million Between 2.47 mil and 10 mil More than 10 million Proportion 19.0% 31.0% 18.3% 17.4% 12.5% 1.8%

Only 14.3% of households have assets higher than the mean.

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Asset distribution
Top 10% households
84.6% of total households assets 61.0% of total financial assets 88.7% of total non-financial assets

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Policy implications
Redistribution of household assets and income is the key policy to promote domestic demand. Possible venues:
Improving New Rural Medical Insurance System. Improving current unemployment benefits. Raising minimum wages.

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Assets (RMB)
Rural Hukou Financial assets Average 31k Median 3k 15k

Finding #2: Total Net Household

Non-financial assets Housing assets in Assets Total assets Debts Net assets 123k

China223k US and
377k 37k 340k

100k 138k 0 122k

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Total Net Household Wealth in 2010

GDP China US (2010) US (2007) 7.3 trillion US$ 15.1 trillion US$ Net Assets 69.1 trillion US$ 57.1 trillion US$ 66.7 trillion US $

Total net household wealth in China is now more than US by 21%.

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Components of total assets

China Housing assets Other assets Financial assets 40.7% 54.0% 5.3% US 32.3% 29.8% 37.9%

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Mean and median comparison

China (Urban registered residents) Mean Median Ratio 368k US$ 61k US$ 6.03 US 499k US$ 77k US$ 6.48

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Finding #3: High Home Ownership Rate and Residential Demand

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Home ownership rate (%)

Urban and rural Overall Urban 89.68 85.39 Rural 92.60 East 87.35 Central 94.42 West 90.41 Regions

International home ownership rate: World average: 63% United States: 65% Japan: 60%

Home ownership rate by cities and age groups (%)

Homeownership rate of urban households 100% 80% 60% 40% 20% 0% under 35 35~45 above 45 Household head age group Beijing,Shanghai,Shenzhen other cities 76.98% 59.88% 87.73% 81.45% 89.92% 82.30%

Urban Home ownership rate by income category (%)

home ownership rate of urban households 90% 85% 80% 75% 70% 0%~25% 25%~50% 50%~75% Income category 75%~100% 76.69% 83.63% 88.47% 86.48%

Current residential demand

Sources of Residential Demands Households without apartments Migrants who have apartments at their home towns Grownups living with parents () Current residential demand Total number of units % of households 15.3% 8.8% 5.9% 30.0% 64.59 million

Incremental residential demand (2011-2015)

Sources of incremental demand New grown-ups New migrants Demolition and relocation Total number of units Per year incremental demand % of households 4% 8.23 mil units 12.1 mil units 28.94 mil units 5.79 million

Current supply
Household owning 2 apartments Household owning 3 apartments Unsold apartments Total number of units 13.0% 5.0% 1.86 million units 40.68 million

Housing sector current demand and supply Amount Current residential demand Current supply Difference Incremental demand per year Housing starts in 2011 64.59 million 40.68 million 24.11 million 5.79 million 19 million units

Housing supply and demand

Less than two-year of work at current production capacity of the housing sector. Only 1/3 of current capacity is needed to satisfy incremental demand.

Caveats: demand
Demand that not yet explicitly considered: Depreciation of housing. Most apartments are built recently. Depreciation should not be a serious problem. Already consider demolition and reallocation the process of tearing down very old houses. Demand for better/larger housing already per capita housing is already pretty large: at 35 square meters.

Assets (RMB)
Rural Hukou Financial assets Average 31k Median 3k 15k

Finding #4: Capital Gains in the

Non-financial assets Total assets Debts Net assets 123k Housing assets Housing 223k Market 377k 37k 340k

100k 138k 0 122k

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Housing prices are too expensive

Ratio of bank loans/household income
Age of household head 18-30 30-40 40-50 50-60 Above 60 Total bank loans/family income 6.53 11.59 5.88 8.31 2.96 Balance of bank loans/family income 4.67 8.53 3.99 6.26 1.03 Repayment duration (years) 17 13 10 8 4

Housing prices are too expensive

Ratio of bank loans/family income
Household income Bank loans/family income Balance of bank loans/family income Repayment duration (years)

below 25% 25%-50% 50%-75% above 75%

32.39 13.53 3.6 3.24

22.77 9.47 2.1 2.55

9 9 11 15

Ratios of Bank loans/family income:

Total bank loans/family income Elementary school Junior high school Senior high school Technical secondary school Junior college College Graduate school 5.84 6.33 11.84 8.04 13.94 5.83 5.45 Balance of bank loans/family income 4.03 3.66 8.59 6.11 10.29 4.78 3.93 Repayment duration (years) 4 8 10 12 18 16 23

Huge capital Gains (10k RMB)

First apt Second apt Third apt Mean Median Mean Median Mean Median Historical costs Current value Nominal gains (%) 19.1 84.1 340% 6.8 30 344% 39.3 95.7 143% 27.5 57 107% 62.0 122.0 97% 47 82 75%

Huge Capital Gains (10 k RMB)

First
All Commercial housing All

Second
Commercial housing All

Third
Commercial housing

History costs

29.5

47.6

33.3

55.6

39.1

82.1

Current values Real gains (%)

74.3 152%

96.7 103%

68.0 104%

96.7 74%

73.9 89%

124.9 52%

Capital Gains of the first apartment (10K RMB)

Household Income History costs Current values Capital gains Below 25% 25%-50% 50%-75% above 75%

mean median mean median mean median mean median

14.0 22.2 58% 6.84 10.00 46% 11.66 20.71 78% 6.68 9.00 35% 17.61 46.04 161% 9.70 18.00 86% 38.92 93.45 17.54 40.00

140% 128%

Capital gains of the first apartment (10k) Beijing/Shanghai/ Shenzhen History costs Current values Capital gains mean 64.0 177.5 177% median 30.9 150.0 385% Other cities mean 14.6 27.3 87% median 8.2 12.0 46%

Capital gains by the time of purchase (10k RMB)

before 1998 1998-2001 2001-2004 2004-2007 2007-2011

mean median mean median mean median mean median mean median

History costs (10K RMB) Current values (10K RMB)

12.6 25.7

5.4 7.5

22.1 58.3

11.4 20.0

35.3 95.9

14.4 25.0

28.8 66.7

14.8 25.0

25.9 47.8

12.5 20.0

Total capital gains 104% 39% 164% 76% 172% 74% 131% 69% 84% 61%

Capital Gains: Public servants vs non-public servants Public servants mean History costs Current values Capital gains 31.59 81.49 158% median 15.49 34.00 120% non-public servants mean 24.86 54.93 121% median 11.08 20.00 80%

Percentages of houses experiencing capital loss if price decreases Decreasing 5% Decreasing 10% Decreasing 20% Decreasing 30% Decreasing 40% Decreasing 50% Decreasing 60% Decreasing 70% Decreasing 80% Loss proportion 14.13 16.11 20.80 27.80 35.76 45.84 55.89 65.00 75.02

Percentage of houses with loan balance higher than house value if price decreases Decrease by 5% Decrease by 10% Decrease by 20% Decrease by 30% Decrease by 40% Decrease by 50% Decrease by 50% Decrease by 70% Decrease by 80% 0.29 2.22 2.22 2.91 9.38 13.31 19.77 27.51 42.48

Chinese banking industry can sustain a large housing price drop.

Summary of findings:
High home ownership residential demand is no longer a big issue. Multiple-houses and industry capacity generate over-supply of housing. Prices are already very high relative to income. Capital gains are substantial banks would be fine even with 30% across-board drop in prices.

Possible public policies:

Most future demands are for investment. So far policies to control demand seem not effective Real estate tax may work but facing objections. Suggest mortgage tax instead of real estate tax. Differentiate two types of market high-end market and low-end market.

Finding #5: Under-developed

Household Financial Market

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Low participation rates

Stock markets: 8.84% Bonds: 0.77% Mutual funds: 4.24% Derivatives: 0.05% Other bank financial products: 1.10%

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Components of financial assets

Bank saving: 57.75% (US: 12.7%) Cash: 17.93% Stocks: 15.45% Mutual funds: 4.09% Other bank financial products: 2.43%

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Stock market loss/profit 2-8 rule:

22.3%

profitable

21.8% breakeven 56.0% losing money

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Older the families, more likely to be profitable Young families16.1% profitable Middle-age families, 23.7% profitable Older families, 30.3% profitable

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Low household debt

Average debts: 62,576 RMB City: 100,815 RMB Rural: 36,504 RMB Debt as a ratio of total assets: 4.76% City: 4.08% Rural: 9.81%

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Active informal finance

Percentage lending money: Percentage borrowing money: Agriculture/Business Housing Autos Education 11.9% 33% 11.8% 20% 2% 7%

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Informal borrowing: high interest rate (%) Urban Bank loan Mortgage loan Informal 9.15 Borrowing 26.47 5.08 4.94 Rural 7.92 6.33

Finding # 6: Myth of the size of the Chinese rural-to-urban migrant workers

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Myth: the size of rural-to-urban migration

Identical between NBS urban/rural survey and CHFS: Urban residents 51.4% Urban registered residents (Hukou): 35.5% Difference: 15.9% Total number of rural to urban migrants (including workers and their family members): 214 million or 30.9% of urban residents
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Migrants composition (CHFS)

Work status Younger than 16 and/or students Housewives Disabled Retired Agricultural work Unemployed Employed or self-employed Percentage 25.0% 6.7% 5.2% 5.7% 10.8% 2.0% 44.6%

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A Different Survey of NBS: Survey on Chinese Rural-to Urban Migrant Workers

NBS Total (in mil) Different city/county by themselves whole family Same city/county 252.8 158.6 125.8 32.8 94.2 CHFS 119.4 46.7 10.4 36.3 72.6

There are 23.2 million people who live in the rural but have short urban work spell.

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Still a myth: the size of rural-to-urban migration

The Survey on rural-to-urban migrant workers is conducted at villages. If this survey were correct, 60% of urban residents in China have rural Hukou. Two NBS survey provide vastly different estimates of the size of the rural-to-urban migrant workers. NBS urban/rural survey and CHFS: 119.4 million NBS migration survey: 252.8 million

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Other Findings

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Assets: Land
Huge shortage in agricultural land 1.8 billion mu Red-Line. However, at least 12% is completely wasted.

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Assets: Business
Self-employment rate: Overall: 14.1% City: 12.4% Rural: 15.2% United States: 7.2%

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Education and entrepreneurship

Years of schooling:
With family business: 9.8 years No family business: 8.9 years bottom 20% scale: 8.1 years medium 40%~60% scale: 9.6 years largest 20% scale: 12.5 years

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Education: 9-year mandatory schooling policy is very effective

Age 18-29 people with lower than 9 year schooling: 7.5%.
65.6% 44.8% 28.1% 19.4% 7.5%

70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%

>60

50-59

40-49 age

30-39

18-29

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Education: expansion of higher education

Born in 1980s or later: percentage with college degree is stabilized at 19%.
18.7 19 19.8

10.2 4.9 1.7

50s

60s

70s

80-84 Ages Born

84-89

90-93

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Education: high returns from higher education

College degree earns 75% higher than high school. Master degree earns 73% higher than college degree. PhD degree earns 30% lower than master degree.
137.83 140 120 96.9 79.54 45.36 17.37 20.5 26.4 29.4

Annual Income (1000 RMB)

100 80 60 40 20 0 <Elem Elem Interm HS 12.4

VocationalT echnical College Masters Education

PhD
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Education: International competition of Chinas higher education 9.78% of students are studying abroad
City: 12.93% Rural: 5.53%

Families with kids younger than 15 years old

Definitely studying abroad: 8.31% Possibly studying abroad: 29.43%

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Thanks !
Survey and Research Center For China Household Finance Southwestern University of Finance and Economics Tel: +86 28 87352095 Fax: +86 28 87352095 Guanghuacun 55, Chengdu, China Web: http://chfs.swufe.edu.cn/
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