The Risky Business of Retirement in ChinaChristina Larson
It’s not surprising that China’s roller-coaster stock markets have earned scant investor confidence. On Tuesday, the respected Beijing financial magazine Caijing reported on a survey of 9,282 investors in Chinese stock markets. Over the lifetime of their investments, just 16 percent had seen net earnings of more than 10 percent; 70 percent had seen losses of more than 10 percent.
The performance of the Shanghai Stock Exchange and Shenzhen Stock Exchange often seems bizarrely detached from national economic performance. Since the beginning of the year, the Shanghai Shenzhen 300 Index—an index of leading stocks on the two exchanges—is down 11.3 percent. Even the famed British money manager Anthony Bolton lost money when he came to China. Bolton, who managed Fidelity International Special Situations Fund for nearly three decades with a stunning average annual return of 19.5 percent, launched the investment trust Fidelity China Special Situations in 2010. Three years later, that fund is down 15 percent, and Bolton plans to step down next year.
The volatile performance of China’s stock markets gives pause to investors of all stripes, but it also unfortunately intersects with another worrying trend in China: the graying of the population. China today is home to 180 million people over age 60. That figure is expected to double to 360 million by 2030. According to Wang Feng, director of the Brookings-Tsinghua Center in Beijing, by 2030, at least one in five people in China will be over age 65. How can they prudently invest for retirement?
The average life expectancy in China is now 73 for men and 79 for women, up more than 12 years since 1970, thanks to improved health care and nutrition. But the mandatory retirement age for most workers in China is fairly low: 50 for women and 60 for men. As a comprehensive report by the Prudential Foundation and the Center for Strategic & International Studies, China’s Long March to Retirement Reform, put it, “older workers seem to have little place in China’s new economic order.” The report also found that as of 2007, only 65 percent of the urban workforce, including both civil servants and private-sector employees, was contributing to even a basic state-mandated pension plan.
For the past half decade, real estate has been the preferred investment vehicle in China. Only two decades old, China’s private real estate market has never yet seen a downturn. Home prices in many leading cities, however, have risen so quickly that many nonwealthy Chinese are struggling today to enter the market and buy their first homes, even with the help of parents’ and extended family’s savings. (To be sure, many analysts and even Chinese megadeveloper Vanke’s chairman, Wang Shi, say the country’s heated real estate market risks becoming a bubble: “If the bubble lasted, it will be dangerous,” Wang told a recent conference in Shanghai.)
What does that leave? Extended family networks. On Monday, a new law requiring that adult children visit their parents went into effect in China, as my colleague Bruce Einhorn reported. Questions about if and how the law will be enforced still loom, but the message is all too clear: China’s seniors and their families must somehow shoulder the burden of retirement and eldercare expenses, as the state seeks a diminished role in social welfare. But China’s savers still have few legal investment choices that offer consistent growth without high risk or entry barriers.