Gold, dollars? China’s middle class unsure where to invest amid market chaos

Eric Li, a mid-level manager at a state-owned enterprise in China, recently sold a two-bedroom flat in Tianjin for 2 million yuan (US$275,700) – about 20 per cent more than he paid for it 12 years ago. The investment yielded almost no net gain after deducting renovation costs and interest payments, but Li said he still considered himself lucky compared with people who had bought apartments in China after 2015. “At least I didn’t lose money,” he said. Now, Li faces a new problem: what to do with the money from the sale. There are no easy options, as he believes housing prices in most Chinese cities are still in the process of bottoming out. He has considered buying US dollars, gold and Hong Kong stocks, but those assets – once seen as stable, safe-haven investments for China’s affluent middle class – have become more volatile this year as global instability roils the financial markets. Many in China share Li’s anxiety. For years, middle-class Chinese were used to thinking of investments as one-way bets, as the country’s prolonged economic boom drove markets ever higher. But many are now coming to realise that it is not so simple. “They’re shocked at the lack of prospects,” said Simon Zhao, associate dean of the Faculty of Humanities and Social Sciences at Beijing Normal University-Hong Kong Baptist University United International College. “Never before did they think that their primary [source of] wealth – properties in first- and second-tier cities – would shrink so drastically, as the vast majority of them were shocked by the unforeseen real estate crisis in China.” “All the other investments and spending that used to be based on the constant appreciation of their homes over the years are now unworkable. They have less money to invest and the cost of trial and error is increasing,” Zhao added. The situation facing Chinese investors has changed dramatically over the past few years, Li said. “Three or four years ago, a 1 million yuan principal in bank-guaranteed financial products could generate at least 40,000 yuan in annual returns,” he said. “Now, it barely earns just over 10,000 yuan. Meanwhile, investing in real estate or traditional industries is likely to only lead to losses.” He had hoped to open a stock trading account with a bank in Hong Kong to invest in stable, dividend-paying companies listed in the city, but found that Beijing’s cross-border capital controls make it is difficult for mainland residents to deposit large sums of money in Hong Kong. Meanwhile, the volatility of the mainland stock markets last year made many retail investors more cautious. The CSI 300 Index, which tracks 300 of the largest stocks in Shanghai and Shenzhen, gained 15 per cent for the whole of last year, but that was mostly driven by a 25 per cent surge during the last three months of a roller-coaster year. “Last year’s fluctuations were too drastic, and I can’t build confidence in the stock market,” Li said. “I only dare to make very small, short-term investments.” Traditionally, the US dollar and gold have served as popular hedges for China’s middle class during times of economic uncertainty. But these markets are now also fraught with risk. Penny Lin, an account director at a Shanghai advertising firm, converted just over 364,000 yuan into US$50,000 at an exchange rate of 7.29 in December and placed it in a one-year fixed deposit with a 4.5 per cent interest rate. “At the time, I thought dollars were the safest bet, and my friends were discussing when the exchange rate would reach 7.5,” she said. “But now, concerns about the dollar depreciating are growing, and I’m starting to worry about what to do when my deposit matures.” Gold has long been considered a form of “hard currency” by Chinese investors, but rising prices have made the market less accessible. Engineer Arthur Kou, who lives in Guangzhou, has been buying gold for the past year, but with prices soaring, he is now uncertain whether to buy more or sell at what could prove to be a peak. The decline in luxury watch prices reflects how pessimistic people are about future wealth accumulation and spending Stephen Liu, tech executive Prices for gold jewellery at major Chinese retailers have increased about 14 per cent so far this year, hitting more than 920 yuan a gram in late March. Even luxury watches – once a status symbol and perceived as a safe investment among wealthy Chinese – have lost their shine. The price of one Rolex model on the secondary market was as high as 1.2 million yuan at its peak, but by 2022 it had fallen to 800,000 yuan. Now, it is down to around 420,000 yuan, a drop of nearly 50 per cent in three years, according to domestic media reports. “The decline in luxury watch prices reflects how pessimistic people are about future wealth accumulation and spending,” said Stephen Liu, an executive at a Shenzhen technology firm who collects watches from world-renowned luxury brands. “In the past, my friends and supervisors were keen to invest in and hold luxury watches, believing they offered better returns than yuan, bitcoin or dollars. But now, even buying watches at such low prices carries significant risks, and the chances of appreciation are slim.” According to Liu, people working in Shenzhen’s tech industry prefer to allocate some of their capital to Hong Kong-listed stocks, particularly in emerging sectors. “But the general consensus is that investments need to be more cautious this year than ever before,” he said.

Gold, dollars? China’s middle class unsure where to invest amid market chaos

Chinese investors have no easy options as domestic real estate prices tumble and turbulence roils the financial markets