2011 Sino-US Dialogue on Financial Planning for the purpose of exchanging ideas and encouraging the development of the Financial Planning Industry in China. The US Financial Planning Delegation traveled to Beijing, Guilin, Shanghai.
The venues for our meetings were posh hotels, banks, universities and the Shanghai stock exchange, where they had only bulls displayed (Photos 1,2,3). Beijing was the most formal of all the meetings, with planners clad in dark blue uniforms and a more serious demeanor. As we worked our way through Guilin and Shanghai, we experienced a more relaxed (Photos 4, 5) environment and high-end attire. A prevalent theme remained throughout: we were honored guests and treated with utmost respect, and titles next to names were very highly regarded. After introductions and recognition of professionals, professors and bankers from both countries, we started right in with round table discussions and comparisons of how planners in China and the US work with clients: product suitability, client expectations and risk protection were among the topics discussed.
It wasn’t too far into the discussion before we realized financial planning is only a five-year old industry and is where we were 40 years ago: very few products offered by many banks, but with very little diversification and replete with consumer skepticism. The banks are hiring college grads and training them to become CFP’s, using the Financial Planning process as set by the Board of Standards in the USA.
The private nature of the Chinese, however, makes it difficult for planners to probe deeply enough to accomplish the planning process. Products are sold without goals to reach. The oh so familiar words are “just give me something with a high return and no risk.” The banks are trusted institutions, but investors are impatient with the low returns on deposits and are turning to real estate to satisfy their insatiable desires to create wealth overnight.
Owning a home in China is a new privilege since 1995. Since then, properties have skyrocketed and people continue to buy. There is no willingness to accept that values could peak and will go down. The three-bedroom condo in this building (Photo 6), as told to me by the owner has appreciated 20% per year over the last eleven years. She and her husband have two more rental properties to take care of their retirement needs.
No one in China owns the land. The government leases it to the urbanites for 70 years and to the farmers for 30 years. Even the government doesn’t know what will happen at the end of the leases. Cash is paid for properties in lieu of expensive loans; the Chinese have learned to save and pay nearly all cash for what they buy. Those employed do get assistance from their firms by being provided some kind of housing fund.
The average life span is 73 and rising; therefore, medical and pension expenses are rising. Financial Planning is promoted so the people can learn to take care of themselves. Everyone in the country is covered by medical insurance, but only those in the cities have the pensions. The consensus is the government won’t be able to provide extensive social systems in the future. The average retirement age is 60.
The “middle class” isn’t truly defined, but is emerging and the average worker earns about 30,000 USD/year, while executives earn 60,000 to 80,000 USD/year. The middle class invests in bank deposits and real estate; the wealthy invest in the same, but include stocks and gold in their portfolios. Mutual funds are limited.
Farming in China is a concern. Children are becoming educated and not returning to the crops. As a result, there is a lot of unused and wasted land just waiting for developers to buy their rights. The “China Southern” newspaper reported a new law to be passed: parents will have the right to sue their children for not visiting them.
Education is important and with a degree from the USA, a student is guaranteed a job upon return to the country.
Taxation and the Economy:
Earned income is taxed, but not investments, cap gains or inheritance. Joint ownership of assets is nonexistent, making transfers at death a challenge. A property unclaimed for three years is forfeited to the government.
Manufacturing is no longer the growth engine. The jobs are in technology, professions, and solar energy. US Treasuries are still in demand by the Chinese government. Real estate could peak soon and the banking industry appears to be becoming the next bubble. Inflation is a big concern at 5.4%; GDP and exports have been down since 2007 and are only half way back to the level they were.
China and the good news:
It is a country populated with industrious people trying to get ahead in the world. It is a mix of tradition and modern, of primitive waste systems to futuristic transportation systems, like the Maglev at 460 kph (approximately 285 mph). Shanghai, with all its glitter, is a major energy user and seemed to be transforming into the next century right before my eyes. (Photo 7)
China and its problems:
With a population of 1.339 billion, the declining rural areas, and the trend toward urbanization, the country has come into the modern age extremely fast. Beijing and Shanghai each with populations of 20+ million, have 5+ million cars. There is terrible smog from auto emissions and industry, spoiling the views and making people ill. Manufacturing has slowed, the younger population has declined, intercity highways and trains are at half capacity and factories are becoming vacated.
If there is a silver lining, it's because the Chinese have learned to save and will pull themselves up by their boot straps. Almost 40% of their income goes into savings. They take comfort in seeing it grow, and we could learn from what is inferred from this common slogan in the country: The Americans spend tomorrow’s money; the Chinese spend yesterday's.
Carol K. Lampe, CFP® is a Financial Advisor based in Pittsburgh, and owner of the Pittsburgh-based, Lampe Financial, LLC.