The Chinese Paradox: Record Dissatisfaction Over Rising Prices AND Near-Record Bullishness On Home Prices

china angel

Earlier today, the People’s Bank of China came up with a survey result on 50 cities, and for those who read Chinese, you can read it  here.  If you don’t, please read on, because you will miss out a lot of fun stuff in the report if you only read this.

One thing which attracts people attention (so much that other parts of the survey are almost missing as far as I can see) was certainly the so-called Price Satisfaction Index, which shows that people are very unhappy about the price level, with that index drops tot he historical low of 13.8%.  So as far as the inflation is concerned, people feel it even though the actual inflation number was merely 5.1%. 

FT, as always, has some interesting analysis on the situation of why the dissatisfaction is so high even though the inflation number is still way lower than in 2008.  They reasoned that back in 2008, the category with highest inflation was pork and meat (e.g. in June of 2008, the inflation in “Meat, Poultry and their products” category was27.3%),  while today, the category with highest inflation is fresh vegetables, which has become more than 30% more expensive in October compared to the year ago.  They go on and reason that Chinese are still rather poor, so vegetables are larger parts of Chinese people diet, so it makes people suffer more, even though the headline numbers are now much lower than in 2008.

On the same report by the People’s Bank of China, there is another part of the survey which asked about home prices.  The survey found that 75.5% of people believe that home prices in China are “too expensive, unacceptable”, which has also hit the record since this survey started.  Despite high prices and all those government measures, 43.3% of people expect home prices to continue to rise, 6.8 percentage more than the previous quarter, and only 2.5% short of the historical high in the fourth quarter of 2009.  The intension to buy homes, however, stays low at 16.2%.

Oddly, however, yet another part of this same survey found that 45.2% of people want to increase investment, substituting the long-time favourite of saving as their first choice.  Now 37.6% of people say they will save more, and only 17.3% of them say they want to increase consumption, with very little to consume whatsoever.  Believe it or not, although some people might wish to suggest that China is restructuring its economy into more domestic consumption driven, this survey result suggests that people are not embracing this idea.

And the biggest surprise here is that, despite I reported just two paragraphs above that people’s desire to buy homes is hovering at historical lows, when asked about the preference of investments, 26.1% of these people want to invest in real estate, while 20.4% of them would like to invest in funds, and 14.8% in stocks, all higher than the previous quarter.

This is the thing about inflation.  Both China and Hong Kong people has the long-held belief that real estate is an inflation hedge, pretty much like gold.  So yes, they are very unhappy about inflation and home prices, but to protect themselves against inflation and rising home prices, they would like to buy more homes.

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