China's middle class expects to be vastly rich in retirement, and it might tell us something about the crazy stock market

China’s growing middle class has staggeringly high expectations when it comes to how much money they will need for retirement.

A recent report from insurer AIA says mainland Chinese residents believe, on average, they require $US1.79 million for a comfortable retirement.

Those surveyed in larger tier-one cities believe they will require $1.94 million, while those living in smaller tier-two cities expect they’ll need $1.64 million.

The research was conducted for AIA by respected social research firm Ipsos.

The mind-bogglingly large figures are significantly greater than what people in many developed nations believe is required for life after stopping work.

For comparison, in Australia, industry estimates say an Australian couple with no welfare entitlements will need around $US750,000, or just over $A1 million, to fund a comfortable retirement.

The Chinese expectation is even more difficult to fathom when set against the current average savings rate in China.

According to the survey, respondents are currently saving on average $US1,036 per month. While a large proportion compared to average average salary, it would take 143 years to reach the target level.

When you take into account the $US255,915 average level of liquid assets currently held by survey respondents, excluding property, the number of years of saving required to reach $US1.79 million falls to a mere 123 years.

While this figure doesn’t take into consideration property assets – 91% of survey respondents declared that they are already homeowners with 69% of those indicating that they have already paid off their mortgage in full – it still suggests expectations for retirement compared to actual wealth and the savings rate are chasms apart.

This is where the stock market comes in.

The huge lifestyle expectations in retirement may be forcing China’s middle-class into investments that offer greater returns, such as stocks. But of course this comes with greater risks.

One of the key findings of the AIA report was that many middle-class Chinese approaching retirement are actively investing in more complex financial assets such as stocks, bonds and mutual funds.

The AIA report said, with emphasis added:

“As part of retirement planning, many of the middle class in Mainland China are active financial planners. Many of those saving for retirement are investing in equities, bonds or mutual funds (73%) – the highest percentage that are doing so among any of the North Asian markets surveyed. This is also a sizeable increase compared with the 57% of the middle class in Mainland China who were investing in equities in the 2013 survey”.

Source: AIA Survey on Middle Class Hopes and Aspirations 2015

Clearly the government’s desire to push investors into the nation’s stock market is having an effect, and may be amplifying risk-taking among China’s middle-class in order to achieve their retirement goals.

What’s more, survey respondents, perhaps lulled into a false sense of security given the government’s relentless efforts to underpin gains in China’s stock market, expressed a distinct lack of concern towards their ability to fund a comfortable retirement. Only 25% of respondents suggested they were worried about saving enough for retirement. This compared to 45% of responses across the broader north Asia region.

Source: AIA Survey on Middle Class Hopes and Aspirations 2015

So China’s middle-class, based on this survey, have huge expectations for their wealth in retirement, are unconcerned about being able to reach their retirement goals, and are pouring money into higher-yielding but riskier asset classes.

While this survey was conducted prior to the recent market rout in China’s stock market, it offers an insight as to why the government, regulators, and even the police, have unleashed a vast array of unprecedented measures designed to support stock prices in recent weeks.

Quite simply, China’s huge and growing middle-class has a lot riding on its success.

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