Fu Peng: Major Asset Reshuffle, Where Should the Money Be Invested?

Source: The New Economist

What Does Wealth Reshaping During Rapid Economic Growth Mean?

Analysis of Major Cyclical Variables—rarely seen over decades, but when they appear, they last for decades. If current trends continue, these assets will have no value in the future.

Pu Peng explains: how to adjust your investment direction, which assets will appreciate, and how your career and consumption should align with the trend.

Full Text:

I am honored to share with everyone today at Taixue. What I really want to discuss is a key core variable—population. It impacts many aspects: real estate, government fiscal health, future infrastructure investment, and even people’s investment preferences.

Key Core Variable: Population

Back in 2018, I already highlighted a turning point regarding population. For China, in 2015, there was a data point: China’s birth rate plummeted again. Up to now, our population growth rate is roughly zero. This number has changed rapidly over the past decade—many people have noticed this now, but in fact, it started happening ten years ago. This data has already begun influencing the economy and investment.

I like to talk about population because many people say, “You’re an investor, previously worked in hedge funds, why don’t you discuss markets?” I reply, I don’t aim to cater to your tastes; I prefer to share the fundamental logic I am thinking about.

Over the past few years, I’ve observed my daughter. Whatever she likes, I invest in. Actually, these two things are one and the same—under major population shifts, our investment directions have changed and been guided accordingly.

For example, in Hong Kong’s market, there’s a well-known new consumption concept—people now hang Labubu dolls on their bags, and in recent years, trendy toys, ACG (anime, comic, game) merchandise, Guzu, Bazhi, standees, and more have become popular. I also recently discussed with some industry veterans in the automotive sector: young people’s car buying habits are truly different now. I told them, when I bought a car for my daughter, I realized her preferences are completely different from ours. Would she prefer V8 or V12 engines? Mechanical performance? Analyzing suspension or brake pads? Or is she more interested in how cute the car looks? She prefers a car that’s adorable, with a plush exterior and a six-screen interior that’s comfortable. From our perspective, that’s not a car, but from her perspective, that’s exactly what a car is.

Why do these changes happen? Because population has undergone significant shifts. In recent years, the main consumer group is young people. So, when analyzing the entire consumer market, you must pay attention to demographic changes—whether in primary or secondary markets.

Post-85s Will Only Enter Silver Economy When They Are Old

Many have told me about the silver economy for the elderly. I have some doubts about this term because our understanding of the silver economy varies greatly. I don’t believe it exists in the first phase of population decline.

To put it plainly, do you live with your parents? If you have that experience, you’ll know—regardless of wealth, whether rich or poor—elderly people tend to have a habit: when you say, “Mom, I’ll be back in half an hour,” they will turn off the lights and air conditioning when you leave. Do you think your family is short of money? Maybe not. Sometimes, consumption habits are more about awareness than income. Just like now, many young people say they order takeout and drink milk tea instead of buying groceries and cooking.

This reflects economic and social mindset—older generations tend to be frugal, thrifty, and hardworking.

Therefore, releasing the consumption power of my parents’ generation is difficult; it often turns into savings. Although they are not short of money, think about it—when we are old, say post-85s or post-90s, only then will the silver economy truly arrive.

Their mindset is roughly: “I’ve had a hard life, I want my next generation to live well,” while later generations like the post-00s might think: “I’ve had a tough time, I want to live better.”

This combination of consumption awareness and demographic age structure reveals that population peaks, total numbers, and aging levels are critical issues. Especially since this major cyclical variable is not a quick change; it’s a long-term cycle. We might not need to analyze this during the reform and opening period until 2015, but once that data emerged, it became essential. That’s why, over nearly a decade, I’ve always considered this a very important factor.

Population Peaks and the Three-Stage Evolution of Real Estate

Population also influences real estate. Real estate typically goes through three stages: housing demand, housing as an investment, and speculation.

Before 2004-2005, China’s real estate was mainly driven by housing demand—reforms, economic growth, and population increase helped meet housing needs. The second stage involves housing and investment demand, closely linked to urbanization.

Why is the post-World War II period a critical node in population topics? Because war reshapes demographic structures, and it has a characteristic I think many overlook.

For example, does marriage and childbirth—more or fewer children—depend on money? My answer is not entirely. Many online voices say young people now are reluctant to marry, date, or have children. The main reason is pressure—housing costs, in-laws, etc. Many attribute declining birth rates to high debt and life stress, but that’s only part of the picture.

In fact, after wars, in tough times, fewer children are born, right? But often, in worse environments, people tend to marry earlier and have more children. So, population peaks occur in different age groups: under 20, 20–30, 30–40, 40–50.

After analyzing post-WWII populations in various countries, a fascinating pattern emerges: the first and second generations after the war tend to marry early and have many children—many siblings, big families. During Spring Festival, large family reunions of 30-40 people were common. Now, family gatherings are much smaller. These large families resulted from early marriage and early childbirth, with each generation’s population peak close together—around age 20, people could become parents.

Today, 20-year-olds are still children; 30-year-olds are young; 40-year-olds can consider marriage. This is the current mindset of our children. But everything has pros and cons—nothing is perfect.

What are the benefits of demographic dividends? After wars, all production factors are redistributed—one of the most important being people. Don’t overly trust technology; people are the most vital factor. If technology could solve all problems, we wouldn’t have cycles. For any country, early stages depend heavily on sufficient population—more people, more growth. Think about why Minnan (Southern Fujian) families value large families: because, historically, technology was weaker than people. People are the core variable in families, clans, and nations.

If, after a war, a country has enough people, it benefits from demographic dividends. But the downside is: can the country support rapid population growth? The key is whether the consumption of essentials—food, clothing, housing, transportation—can match population growth. This determines whether production factors are an advantage or a burden.

Another problem: if population peaks are too close, the effects may only show after 10 or 20 years. After rapid economic restructuring, a close population peak leads to a three-stage pattern in housing: from living to investment to speculation. During the second and third stages, the beneficiaries and those in debt are very close.

Post-reform, China accumulated wealth, and housing demand improved. When the 80s generation started urbanizing and establishing families, housing prices rose. They had to buy from the 60s and 70s generations, which prevented intergenerational effects—no transfer of wealth across generations.

Wealth is the same; the act of sharing the cake hasn’t yet occurred, so you’re left with a share. This is common across countries, not just China—post-war populations often face similar issues with overlapping population peaks.

Neighboring Japan, Korea, and even Southeast Asia face the same problem. I’ve called this “intergenerational redistribution”: wealth redistribution linked to population shifts. If too fast, some get wealth, others don’t; if too slow, labor shortages occur.

I’ve told many: watch Japan’s central bank raise interest rates, expect inflation there. Many don’t understand—Japan’s economy grows only 0–1%, how can it have inflation? That’s a big misconception.

For most workers, what determines wages? Market supply and demand. If labor supply increases and demand remains the same, wages fall—causing deflation. If labor supply decreases but demand stays constant, shortages push prices up.

Japan’s population cycle started 30 years earlier than ours. Its adjustment is crucial. So, does Japan need rapid growth now to generate inflation? Many make a mistake—economic growth is a total volume. For residents’ income growth, a key factor is distribution. I’ve never said Japan needs high total growth to lift household incomes; rather, growth must be maintained without falling behind.

I’ve explained before: understand Japan’s intergenerational distribution. Many netizens say, “When you’re old, your money goes to your children.” But think carefully—if the elderly, say over 65, account for 200 million people, do they just give all their money to their children? Not necessarily. When you’re 65+, what do you do? Save money, give pensions, or leave inheritance? If you’re still active at 60, you might give some savings to children, but not everything. When I joke about a “tragic retirement,” I mean, if you give all your wealth to your children, what happens when you need medical care? You might be hospitalized, but your assets are gone.

In East Asia, wealth transfer often occurs after the elderly pass away. Small gifts—helping buy a car, giving some money—are common, but giving everything freely is unlikely. I tell my children: I’ll spend my savings first; I might help you a little, but when I die, that money belongs to you. Principally, I won’t give all my wealth now.

Declining Investment Risk Appetite, Rising Savings

Another question: after a society creates wealth, what happens when that wealth accumulates in one generation? When they age, what changes?

This relates to our investments: risk appetite declines, savings increase. Many say this is due to lack of confidence. I disagree—because that assumes everyone is the same, same age, same risk preference. The reason people prefer savings is often due to external economic conditions and investment environment—lack of confidence. But I see that wealth distribution varies.

What influences risk preference? Back in 2018–2019, I told many institutions: consider that in China, future fixed deposits with 3% interest will be hard to find; rates may keep falling. I explained that rapid wealth creation and economic miracles are concentrated in one generation, leading to a preference for savings and risk aversion.

What do the elderly like? Saving money, low-risk investments—like dividend-paying stocks, monopolistic industries such as coal, oil, water, gas, electricity—yielding around 4% dividends is good.

If I apply this to a 20-year-old, they might say: “I worked hard for a year, saved 50,000 yuan. Can I double it through leverage? Turn 50k into 100k, then 200k, then 400k?” I understand. I don’t call them reckless or overly speculative—different ages have different risk preferences.

I often tell young people: gamble a little—turn a bicycle into a motorcycle. But if you lose, you’re still young—don’t jump off a bridge. You have time and opportunities. For someone close to retirement, say over 50, I say: “Gamble? No, stability is key.” Even with low interest rates, they want stability. Naturally, society’s risk appetite for investments declines. But within that decline, young people still have exciting opportunities—just very different.

Honestly, in recent years, do you still hold other assets? Like walnuts, stamps, antiques, jade, or calligraphy? Everyone knows these have mostly depreciated over the past decade. I’ve already sold off most. Some say these are bubbles; I believe they are heirloom values. I disagree. When that generation passes, I can tell you, their assets will still have no real value—value is assigned by people. Whether something has value depends on human perception.

This is my view: don’t rigidly define or judge what is valuable. Value is assigned by humans—when people change, wealth changes, and the game changes too. The same principle applies.

In recent years, I invest in what young people like. I don’t judge by my values. For example, when my daughter and kids queue for hours to buy milk tea, I understand this marketing—waiting four hours for a drink. My value? If I have to wait ten minutes, I think it’s not worth it.

But it doesn’t matter—if young people like it, we follow that marketing. That’s why the most popular marketing these days emphasizes features like “six screens,” gaming, or social media. Why cater to consumers? Yes, there are issues, but young people’s perceptions are different.

Assets That Will Have No Value in the Future

This also involves other issues. Since real estate will end in the future—after 2018, the speculative phase ended, and I believe the housing as a living and investment demand phase is over. The next stage is just “living”—housing is for eating, drinking, and daily needs. Without people, there’s no housing demand.

You know the historical peaks of real estate bubbles in Japan, Korea, even the US? They’re driven by speculation—crazy speculation. Vacation homes, resort properties, retirement communities are at the bubble’s peak.

Recently, I’ve been recovering in Chengdu. Do you know what’s happening there? During expansion, people move outward; during contraction, they return to inner rings—like the second or third ring roads. Why? Because my family has four elderly members. Regarding future elderly care, people won’t retire in tourist or resort destinations—public facilities are lacking. So, many move from outer districts back to city centers for better services, healthcare, and amenities. If urbanization continues, there’s still some growth; if it stalls, resources will concentrate in core areas.

Historically, Japan’s most frantic real estate was in ski resorts, seaside resorts, vacation apartments. Now, Japan’s housing index has recovered to pre-1990 bubble levels, but with significant differentiation—some areas have people, others don’t. The key is “living”: where there are people, there’s demand; where no one lives, demand will never return. Looking ahead, based on current demographic trends, in 10–15 years, these assets will have no value. Some say, “I can rent it out for 100–150 yuan a month,” but that barely covers depreciation.

This also relates to infrastructure. A little-known fact: the main working-age population—ages 24 to 45—is the primary taxpayer group. Their proportion in total population is critical—should not fall below 25%. If the main taxpayers are less than 25%, problems arise.

When this proportion hits a certain historical low, fixed asset investment peaks, and urbanization reaches its maximum.

Some cite Japan’s data—its urbanization peaked when the rate was still rising, but that’s because rural areas disappeared. Japan’s Heisei mergers eliminated many towns and villages, increasing urbanization. In China, this could mean many villages vanish, and urbanization rate rises naturally.

The final result: public spending on rural roads and railways becomes unnecessary—no point maintaining roads to tiny villages with five households. Similarly, if the urban population shrinks from 1 million to 800,000 or 600,000, building new subways makes little sense.

Rewinding to 2008, with abundant labor and economic growth, all factors were in place—no worries about future returns. That’s why the saying “Build roads first to get rich” was valid—under the premise that key factors remain unchanged: people, growth, and investment.

Now, like Japan and Korea, after reaching the peak, fixed asset investment will likely halve. The key question: what is the proportion of main laborers and taxpayers? When that drops below 25%, how can public finance, subways, and infrastructure be maintained? Over the next decade, we’re probably at or near the peak of fixed asset investment.

In conclusion, if real estate investment returns to “living”—where people are—the answer is simple: where there are people, there is “living.” But once back to “living,” significant differences emerge—old houses versus new, just like aging people. Old, dilapidated small units can’t be easily demolished anymore; demolition was a product of high urbanization. Once that phase ends, many old, small, dilapidated units will be costly to maintain. The price gap between old and new will be huge—even within the same area. Other social factors, like hospitals and schools, will become less important.

So, now it’s simple: buy school district housing or medical district housing? Think carefully—hospitals are also public investments. Likely, no new hospitals will be built in most cities.

Limited resources will be concentrated in cities. Development will focus on urban clusters—no doubt. This is the current trend in population change.

Earlier, I discussed population issues, real estate, personal investment, infrastructure, and government spending. Today, I mainly want to emphasize the importance of analyzing long-term cyclical variables—they usually take decades to manifest, but when they do, they last for decades. Thank you all.