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

Understanding population changes is understanding the wealth map for the next decade. The map is hidden in young people’s preferences—what young people like is the next growth point.

Source: New Economist

What does the redefinition of wealth during rapid economic growth mean?

Analyzing long-term cycle variables—usually not encountered for decades—when they do appear, they last for decades. If current trends continue, these assets will have no value in the future.

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

Full Text:

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

Key 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—people are aware of it now, but in fact, this happened ten years ago and has already begun affecting the economy and investment.

I like discussing population with everyone. Many say, “You’re an investor, previously worked in hedge funds, why talk about markets?” I reply, I won’t 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. Essentially, these two things are one—under major population shifts, our investment directions have changed and been guided accordingly.

For example, in Hong Kong, there’s a well-known new consumption concept—people now hang Labubu dolls on their bags, and in recent years, trendy toys, anime, Guzu, Baji, and standees have become popular. I also recently discussed with industry veterans in the automotive sector—people say young people now buy cars differently. I said yes. When I bought a car for my daughter recently, I realized our needs and her preferences are completely different. Would she prefer a V8 or V12? Mechanical performance? Analyzing suspension or brake pads? Or is she more interested in how cute the car looks? The car is pink and adorable, with six screens inside connected seamlessly—very comfortable. From our perspective, we see it as just a car, but from her perspective, that’s exactly what a car is.

Why are these changes happening? 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 aging.

To put it plainly, if you’ve lived with your parents, you should know—regardless of wealth, 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 they lack money? Maybe not. Sometimes, consumption habits are not directly related to wealth but to awareness. Just like now, many young people say they order takeout and drink milk tea instead of cooking.

This reflects economic and social mindsets. Older generations tend to be frugal, thrifty, and hardworking.

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

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

This combination of consumption awareness and demographic age structure shows that population peaks, total numbers, and aging levels are all critical issues. Especially since this long-cycle variable is not a quick change; it takes decades. We didn’t need to analyze this during the early reform period until 2015, but after that data came out, it became essential. That’s why, over nearly ten years, I’ve always considered this a very important factor.

Population Peaks and the Three-Stage Evolution of Real Estate

Population also affects real estate. Real estate goes through three stages: housing demand, housing investment, and speculation.

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

Why is the post-WWII period a critical node in population discussions? 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. The decline in birth rates is often attributed 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, but in worse environments, people tend to marry early and have more children. Population peaks occur in these age groups: under 20, 20-30, 30-40, 40-50.

After WWII, the first and second generations generally married early and had many children—large families. During festivals like Spring Festival, big family reunions of 30-40 people were common. Now, even a family of three is rare. These large families resulted from early marriage and high fertility, with each generation’s population peak close together—around 20 years old, they 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. Many say technology is the key, but I disagree. People are the most important factor among all production elements. Don’t blindly trust technology; if technology could solve everything, normal cycles wouldn’t exist.

For any country, early on, people are the most vital resource. As long as they can be supported, more is better. Think about why Minnan family clans emphasize population growth—because, historically, human resources were weaker than technology, making people the most critical 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 population grow too fast to support it? The key is whether the growth of essentials—food, clothing, housing, transportation—can match population growth. This determines whether production factors become assets or burdens.

Another downside: if population peaks are too close, effects may only manifest after 10 or 20 years. After rapid economic growth, population peaks too close lead to a three-stage housing cycle: from residence to investment to speculation. During the second and third stages, housing becomes a speculative asset, with investors and heavily indebted individuals close together.

Reform and opening up brought initial wealth, and early housing demand led to property ownership. When the 80s generation started urbanizing and establishing families, housing prices rose. They had to buy from the previous generations—creating a lack of intergenerational transfer effects, or “skip-generation” effects.

Wealth is the same; the process of sharing the cake hasn’t reached the next generation. This is common in many countries, not just China. Post-war population peaks cause similar issues worldwide—Japan, Korea, Southeast Asia face the same.

I’ve mentioned before the concept of intergenerational redistribution: wealth is redistributed as population shifts. If too fast, some get more, others less; if too slow, labor shortages occur.

I tell many: watch Japan’s central bank raise interest rates, see Japan face inflation. Many don’t understand—its economy grew from 0 to 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 low, wages fall—causing deflation. If labor supply decreases but demand stays, shortages push prices up.

Japan, 30 years ahead of us, shows how critical population cycles are. Does Japan need rapid growth to generate inflation? Many make a mistake—economic growth is total volume, but for residents’ income, distribution is crucial. I’ve never said Japan needs high total growth to lift household incomes; it needs to prevent decline while maintaining total volume.

I’ve explained before: understand Japan’s intergenerational distribution. Many say, “When you’re old, your money goes to your children.” But think: if you’re over 65, with a population of 200 million, do you just give all your money to your kids? No. When you’re old, you might give savings, pensions, or retirement funds—but if you’re still active at 60, you might not do that. I joke: a miserable old age awaits.

Why does Japan have this situation? Because elderly people with children leave behind money after they pass—millions of yen in drawers. Some jokes are funny, but they reflect reality: if I give all my money to my children, when I need treatment in hospital, I might be denied care; if my children face financial difficulties, I might help them, but I won’t give all my wealth. In East Asian cultures, wealth transfer often occurs after the elderly pass away. Small transfers happen during life—helping buy a car, giving some money—but giving everything freely is unlikely before death. I tell my children: I’ll spend before I go; I might help a little, but the rest is theirs after I pass.

Declining Risk Appetite and Rising Savings

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

This relates to our investments: risk appetite declines, savings increase. Many say this is due to lack of confidence, but I disagree. The statement assumes everyone is the same—same age, same risk preference. The reason for increased savings is often external—current economic conditions, external environment—but I see it differently: wealth distribution varies.

What influences risk appetite now? 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. During that period, I discussed population, rapid wealth creation, and economic miracles concentrated in one generation, leading to a preference for savings and risk aversion.

So, what do elderly people like? Saving money, low-risk investments. For example, I often advise people in their 50s or 60s, or retirees, to choose fixed income, dividend-paying stocks, or monopolistic industries like coal, oil, water, gas, electricity—aiming for around 4% dividend yield.

If I apply this plan to a 20-year-old, they might say: “I work hard for a year and save 50,000 yuan. Can I double it through compound interest? Turn 50,000 into 100,000; 100,000 into 200,000; 200,000 into 400,000?” 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, remember—you’re young, you have time and chances. If I tell a 50-something about gambling, can they afford to take risks? No—they need stability. 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, right?

I can tell you I’ve long sold off such assets. Some say they’re bubbles; I say they’re family heirlooms. I strongly disagree. Why? Because once this generation passes, I can tell you—they’ll still have no real value. Value is assigned by people. Whether something has value depends on human perception.

This is my view: don’t define or judge what is valuable; value is given by humans. When people change, and wealth changes, the game changes too—same principle.

In recent years, I’ve invested in what young people like. I never judge by my values. For example, when my daughter and kids queue for hours to buy milk tea, do you 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. So, the hottest marketing now is this: don’t promote safety, quality, engine size, or brake details. Instead, promote features like six screens for gaming. Why cater to consumers? Yes, it has issues, but young people’s perceptions are different.

Assets Will Have No Value in the Future

It also involves other issues. Since real estate will end in the future—after 2018, the speculative phase ended, and I believe the residence and investment phases are over. The next phase is just living—people’s basic needs for eating, drinking, and shelter. Without people, there’s no housing.

Do you know the historical peaks of real estate bubbles in Japan, Korea, or the US? It’s called speculation—crazy speculation. Non-essential properties like vacation homes, resort properties, retirement estates are the peaks of bubbles.

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—why? Because my family has four elderly members. Regarding future elderly care, people won’t retire to tourist or resort destinations—public facilities are key. You’ll see many move from outer rings back to inner city areas like Erhuan or Sanhuan, because of amenities, healthcare, and community life. If urbanization continues, there’s still some growth; if it stalls, public resources will concentrate in core areas.

In Japan’s past, the most frantic real estate was in ski resorts, seaside apartments, vacation homes. Now, Japan’s housing index has recovered to pre-1990 bubble levels, but with significant differentiation—some areas have people, others don’t. The core is “living”—areas with residents have recovered; abandoned properties never will. 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 a monthly cash flow of 100-150 yuan,” but that’s less than the depreciation cost.

It also involves infrastructure. A key figure many don’t know: the main working population—ages 24 to 45—are the primary taxpayers. Their proportion in total population must be above 25%. If it drops below 25%, problems arise.

When this ratio hits a certain historical level, fixed asset investment peaks, and urbanization reaches its zenith.

Some cite Japan’s data, saying urbanization peaked when the rate kept rising. But note: at the final stage, urbanization isn’t driven by city expansion but by rural decline. Japan’s Heisei mergers—municipal consolidations—led to urbanization, which in China could mean many villages disappearing, with urbanization rate rising naturally.

The result? Public expenditure on rural roads and railways becomes unnecessary. No point maintaining bus routes in tiny villages with five households, or building subways when urban populations shrink from 1 million to 800,000 or 600,000.

Back in 2008, with abundant labor and economic growth, all factors were in place—no worries about future returns. That’s why the saying “Build roads to wealth” was valid—assuming key elements stay constant: people, economic growth. But now, in countries like Japan and Korea, after the peak, fixed asset investment drops to about half. When does this happen? When the main working and tax-paying population drops below 25%. How do we sustain public finance, subways, infrastructure? Likely, in ten years, we’ll reach that peak too.

So, if real estate investment returns to “living,” where are people? Where there are people, there’s “living.” But once back to “living,” disparities emerge—old versus new housing. Old, dilapidated housing can’t be demolished easily; demolition is a product of population peaks and urbanization. Once that process completes, many old, small, dilapidated buildings will be hard to renovate or demolish. This means maintenance costs will skyrocket, and prices of old and new homes will diverge greatly—even within the same area. Other social factors will become less important; hospitals will become critical, schools less so.

So, now it’s simple: buy school district housing or medical district housing? Think about it—hospital infrastructure is a public investment. Likely, no new hospitals will be built in a city. Resources are limited and concentrated in urban centers. Development will focus on large cities—no doubt. This reflects current demographic shifts.

Earlier, I discussed population, real estate, personal investment, infrastructure, and government spending. Today, I mainly want to emphasize analyzing these long-cycle variables. They usually take decades to manifest, but when they do, they last for decades. Thank you all.