Claims for China's household wealth just don't add up

PUBLISHED : Monday, 20 August, 2012, 12:00am
UPDATED : Tuesday, 21 August, 2012, 7:19am

Researchers in China have been coming up with some truly eye-popping numbers lately.

In May the Chengdu-based Southwestern University of Finance and Economics and the People's Bank of China published a survey claiming that the average urban family in China owns assets worth 2.47 million yuan (HK$3 million), and that 90 per cent of all households - both urban and rural - own their own homes.

On top of that, Peking University came out with a report saying that the average Chinese family lives in a home with 116 square metres of floor space.

Let's take a closer look at these figures.

If 90 per cent of China's families really do own their own homes, then China has one of the highest home ownership levels of any major economy in the world.

The proportion in property-obsessed Britain is only 66 per cent, while just 65.5 per cent of American households own their homes, down from 69.2 per cent in 2004.

Still, let's assume the figure is correct, even though it doesn't square with estimates that some 200 million urban residents live in old air-raid shelters, basements, dormitories and other sub-standard housing.

And let's also assume that the average family home really is 116 square metres in area, or nearly 1,250 square feet: more than twice the size of the typical Hong Kong flat.

Given that the average household comprises 3.1 members, that implies China's housing stock totals roughly 50 billion square metres.

It may well do for all I know. But if it does, then the vast majority of the country's housing stock is old and shoddy, because according to official figures, China has built only 9 billion square metres of housing since 1995.

In other words, more than 80 per cent of China's homes are more than 17 years old, and date from an era when the country was hardly renowned for the quality of its construction work.

That calls into question Southwestern University's other astonishing statistic: that the average urban household owns assets worth 2.47 million yuan.

If that figure is right, China's 220 million urban households own a total 540 trillion yuan in assets.

Household debt levels are low at just 9 trillion yuan. But even if debts are 10 times as high as official figures indicate, the total net worth of China's urban households would still be 450 trillion yuan.

In US dollar terms, that equates to US$71 trillion. In contrast, the total net worth of all American households at the end of March was just US$63 trillion.

It would be truly astounding if the household sector in China were wealthier than in the US, an economy more than twice China's size.

But alas, the numbers don't add up. Let's assume Chinese households hold their financial assets in the form of shares, savings deposits and property.

If we assume households hold 30 per cent of China's stock market capitalisation, which is generous given the limited free float, then they own around 10 trillion yuan worth of shares. On top of that, they have 40 trillion yuan in savings deposits.

As a result, if the Southwestern University figure is correct, it means almost 90 per cent of household assets, worth 400 trillion yuan, is held as property.

We've already worked out that if Peking University's report is right then China's housing stock totals some 50 billion square metres. That means, the average value of residential property in China must be 8,000 yuan per square metre.

It's not. According to official figures, the average transaction price last year was 5,000 yuan per square metre. And that valuation applies only to the 1 billion square metres of saleable housing that changed hands in 2011, not to the bulk of China's ageing and dilapidated housing stock.

That means the true value of urban household wealth must be far, far lower that the 2.47 million yuan per household that Southwestern University claims.

Admittedly, I haven't factored in the value of family stakes in unlisted private businesses, which must be substantial.

But even so, it's impossible to see how household wealth in China could possibly surpass that in the United States.

These figures might be eye-popping, but are simply not credible.