2014 GERSON LEHRMAN GROUP, INC. ALL RIGHTS RESERVED.

October 10, 2014

CHINESE HOUSEHOLD
ECONOMIC TRENDS
Li Gan, PhD
Professor of Economics, Texas A&M University
2014 GERSON LEHRMAN GROUP, INC. ALL RIGHTS RESERVED.
Li Gan
Li Gan is a Professor of Economics at Texas A&M University and Dean of School of Economics at
Southwestern University of Finance and Economics. He is also the Director of the China Household
Finance Survey, the only nationally representative survey in China that has detailed information
about household assets, including housing, business assets, financial assets, and other household
assets.The survey also has information on income, expenditure and social and commercial
insurance. So far, this survey is only resource about household wealth in China. He holds positions
at the National Bureau of Economic Research and the Private Enterprise Center, and his research
has focused on Chinese consumption, banking, environmental policies, income inequality, and
housing. His work has been cited in articles published in The Economist, CNN, Science, and major
academic journals. He holds a PhD in Economics from the University of California Berkeley and a
B.E. from Tsinghua University in Beijing.
Chinese Households
Economic Trends
Li Gan

Texas A&M University and Southwestern
University of Finance and Economics

Oct, 2014
3
China Household Finance Survey (CHFS)
Income Inequality and Consumption
Vacancy Rates for Residential Properties
Urbanization
Expectations and Economic Trends
4
Coverage of CHFS
5
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 at
both 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
6
China Household Finance Survey (CHFS)
Income Inequality and Consumption
Vacancy Rates for Residential Properties
Urbanization
Expectations and Economic Trends
7
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
8
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 rates
Percentage of total
total saving
Highest 5% 72.2% 49.2%
Highest 10% 45.2% 62.7%
Highest 25% 42.9% 81.8%
10
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 economic
growth.
11
China Household Finance Survey (CHFS)
Income Inequality and Consumption
Vacancy Rates for Residential Properties
Urbanization
Expectations and Economic Trends
12
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
13
13
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%
14
Commercial and affordable housing have higher vacancy rates
Note: Others include self-built housing ,inherited or gifted housing.
Inventory
Accounting
47.3% 4.1%
10.1%
14.5% 4.5% 19.5%
15
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%
Commercial
house
Affordable
house
Demolition
house
Get from
housing
reform
House built
by individual
funds
Others
15
Commercial housing: first-tier cities have a lower vacancy rate
16
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%
16
A pressure test reveals a substantial risk for Chinas housing market
17
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.
17
18
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 about
27 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 are
roughly 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
China Household Finance Survey (CHFS)
Income Inequality and Consumption
Vacancy Rates for Residential Properties
Urbanization
Expectations and Economic Trends
20
21
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 700,000
neighborhoods in China from 2009 to 2013. During this period,
3.8% of neighborhoods are reclassified as urban neighborhoods.
Mystery of urbanization
22
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
Rural Urban is more like rural.
Percentage own
agricultural land
Percentage in
agricultural
work
Percentage
with rural
Hukou
Urban before 2009 23.1% 10.5% 38.8%
Rural to Urban in
2009-2013
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
Newly
Urban
Originally
urban
Housing
demolitiona
land
requisition
Housing
purchase,
schooling,
and
employment
Rural Hukou
Urban Hukou
2.4%
6.0%
Redefined
Migrants
Relocating
Migrants
14.3%
11%
41.9%
3.3%
20.9%
Data SourceCHFS
% 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 hukou families. 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 a
substantial overestimate of housing demand.

It is likely that the misunderstanding of urbanization may be a
cause of 30 million overbuilt units of commercial housing.

27
China Household Finance Survey (CHFS)
Income Inequality and Consumption
Vacancy Rates for Residential Properties
Urbanization
Expectations and Economic Trends
28
First
quarter
Second
quarter
Third
quarter
Overall 6.8% 5.1% 5.6%
Migrant
workers
6.9% 4.3% 6.1%
Urban hukou 6.7% 5.7% 5.1%
Unemployment rates for urban residents
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First
quarter
Second
quarter
Third
quarter
Urban 19646 20171 19290
Rural 9797 9979 11322
Nationwide 15214 15585 15962
Household Income Change
30
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
31
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.
95.7
92.2
111.5
106.4
134.1
156.6
96.4
101.8
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)
33
Average expectation on stock price turn to positive at third
quarter.
Multiple-house families are substantially more positive than the
rest.
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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