A generation ago, China’s then leader Deng Xiaoping declared that “to get rich is glorious”. Not only Chinese people but people across Asia started accumulating wealth as economies grew. Asians already save more than Westerners but demographic changes will change how they save.
Asia saves for retirement, to pay for education, and for emergencies like hospitalisation. Chinese savings equate to 42 per cent of annual GDP compared with the global average of 25 per cent but changing Asian life styles and life expectancies will increase the opportunity, and the need, to save more.
Asians are living and working longer. They thus accumulate more assets – but need more for their extended retirement. More women are working, marrying later, and having fewer children: this boosts household incomes and changes how cash is spent.
And there are more families where grown-up children have left, leaving parents comfortable financially. The number of USD50,000-a-year Chinese households could exceed 64 million by 2030.
The migration from villages to cities increases Asian incomes and this urbanisation directly impacts the property market.
Excluding Japan, Asians’ pension assets are expected to reach USD108 trillion by 2050 – up from USD15 trillion in 2010 – with most coming from East Asia, especially mainland China.
But growth should be even higher; many countries’ current saving does not yet match retirement requirements. People need to reconsider their current lifestyle as they get older and save more. This savings gap is particularly apparent in India, Vietnam, mainland China and Korea.
Where to keep this accumulated wealth has been an issue. Banking penetration is low in some parts of Asia, especially in India and Indonesia. Buying property is a popular alternative, helped in mainland China by a privatisation policy that sold homes at large discounts. Home ownership for urban Chinese households is 96 per cent: even among the lowest-earning 20 per cent, ownership is 89 per cent in China compared to 33 per cent in the US.
Asians buy insurance and other financial products. We calculate that total assets managed by Asia’s domestic investors – including pension, insurance, and mutual funds – rose 13 per cent to USD13.5 trillion during 2018.
Singapore, Hong Kong, Korea, Taiwan, and Malaysia have well-developed insurance and pension systems – unlike Thailand, Indonesia, India, mainland China and the Philippines. Korea’s National Pension Fund is one of the world’s largest, with USD462 billion in assets. Taiwan has the world’s highest life-insurance penetration but India and mainland China lag, leaving scope for growth.
Asians are increasingly investing in mutual funds and increasingly invest within the region.
In particular, India’s preference for physical assets such as property and gold is shifting to financial assets, which now comprise more than 40 per cent of household savings. However, asset-management firms administer the equivalent of only 12.8 per cent of India’s annual GDP compared with a world average of 62 per cent.
Just 21 per cent of Chinese have credit cards, compared to two-thirds in Japan or the US – and only 3 per cent of Indians. Increased internet and mobile-phone adoption, e-commerce and urbanisation will drive up use rapidly though and COVID-19 has accelerated non-cash payment.
Fintech has been rapidly adopted in Asia. Korea has the world’s highest smartphone and internet penetration, creating a tech-savvy corporate and consumer culture.
First published 18 August 2020.Would you like to find out more? Click here to read the full report (you must be a subscriber to HSBC Global Research).
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