“It’s just heart-breaking,” the 40-year-old financial worker from Shanghai said. “The only thing that still keeps me going is the thought of keeping my job so I can support my big family.”

Zhou’s predicament will resonate with many people in China, where slumps in the real estate and stock markets are wiping away household wealth. And as the world’s second-largest economy struggles to regain momentum after years of Covid-19 lockdowns, there’s also the growing threat of unemployment.

Now, middle class households are being forced to rethink their money priorities, with some pulling away from investing, or selling assets to free-up liquidity.

At the heart of the decline in family wealth is China’s real estate meltdown, which having a pervasive effect on a society where 70% of family assets are tied up in property. Every 5% decline in home prices will wipe out 19 trillion yuan ($2.7 trillion) in housing wealth, according to Bloomberg Economics.

“It might just be the beginning of more wealth losses in coming years,” said Eric Zhu, an economist with Bloomberg Economics. “Unless there’s a big bull market, small gains in financial wealth are unlikely to offset losses in housing wealth.”

While China’s official data show just a mild drop in its existing home prices, evidence from property agents and private data providers indicate declines of at least 15% in prime areas in its biggest cities.

The housing sector’s value may shrink to about 16% of China’s gross domestic product by 2026 from around 20% of GDP currently, according to Bloomberg Economics. This would put about 5 million people, or about 1% of urban workforce, at the risk of unemployment or reduced incomes.

Rainy Days

Financial investments offer little respite. Chinese shares underperformed emerging-market peers by the widest margin since at least 1998 earlier this month. Mutual funds were in the red as of the third quarter. Yields on banks’ wealth management products remain subdued and deposit rates have seen three reductions in the past year.

The $2.9 trillion trust industry, where wealthy Chinese investors have sought high returns from products sold by loosely regulated shadow banks, is showing cracks, with one recent scandal potentially involving tens of billions of dollars in losses.

Net worth per adult in China slid 2.2% to $75,731 in 2022, UBS said in its August global wealth report, while total assets per adult fell for the first time since 2000 as non-financial holdings shrank due to the housing market difficulties.

Media worker Echo Huang watched as the value of her investment property in Ningbo, Zhejiang province fell about 1 million yuan from its 2019 peak. Now, she considers herself lucky to have sold it in May before prices dropped further.

Huang gave the majority of the proceeds from the property sale to her parents for their retirement savings, and put the rest in demand deposits and money market funds that allow real-time redemptions. She ruled out stock investments after her current holdings more than erased all gains since 2018.

“My company is struggling to survive, so who knows if I might get paid less or even laid off one day,” said the 39-year-old. “My main goal is stability in my assets, and I want to keep enough liquidity on hand.”

Wealth Protection

Even high-net-worth-individuals are turning more conservative, according to a joint survey by China Merchants Bank Co. and Bain & Co. The number of the cohort citing “wealth protection” among their major money goals jumped significantly in 2023, and mentions of “wealth creation” decreased.

Peter Bao, who works at a big technology firm in Beijing, is following a prudent investment strategy.

His stock holdings, mostly in US-listed Chinese shares, at one point halved to the equivalent of about 5 million yuan from a late 2020 peak. Over the past two years he’s shifted part of his assets to money market funds and fixed income products that require less analysis. He’s hoping that he’ll be able to withstand short-term volatility and potential losses.

“There isn’t a single moment without anxiety and doubt, but there are no better options,” Bao said. “Also I need to focus on my job to protect my source of income, so I really can’t spare more time to explore other investments that are reliable.”