Bubble behind asset growth

A report conducted by the Southwestern University of Finance and Economics in Chengdu, Sichuan province, on the financial situation of Chinese families in 2012, found that the total net assets of Chinese families is $69.1 trillion, $12 trillion more than their US counterparts. However, such figures just show how big the bubble is in Chinese families' wealth, says an article in Workers' Daily. Excerpts:

The Chinese annual average income is about $4,000. In the United States it is about $40,000.

Although the US economic recession is continuing with little prospect of an increase in investment, the report's findings seem less than convincing considering the difficulties China is facing, such as the weak real economy and deficiencies in its social security coverage.

Though recent years have witnessed a growth in the income of ordinary Chinese citizens, generally speaking it has not matched the growth in GDP. Besides, influenced by inflation and heavy taxes, actual purchasing power has tended to shrink.

Thus according to the report's findings, ordinary Chinese people must have obtained huge profits from investments taking advantage of China's rapid economic development. However, there has been a continuous downturn in the stock market, which has made general shares and other financial products less profitable.

So the real driver must be real estate. Anyone who has invested in the property market in recent years should be at least a millionaire. However, real estate investment does not actually improve the quality of life.

The report not only reveals the net asset bubble produced by the real estate bubble, but also how dangerous it could be. If the government fails to strictly implement control of property prices and shift the focus to the real economy, both the overall macroeconomy and the seeming wealth of most Chinese family will be at risk. After all, genuine affluence relies on rising incomes, improvements in social welfare and more jobs.

(China Daily 07/18/2012 page9)