Chen Zhiwu, Professor of Finance at Yale University, stated recently at the launch ceremony of the Investor Protection Program of the Northeast Asia Precious Metals Exchange and the Investor Protection Summit Forum that 79% of Chinese household asset allocations are invested in real estate. If home prices fall, a large number of Chinese households, especially those in first-tier cities, will see their wealth shrink severely.

Chen Zhiwu said that from 2007 to 2010, under the impact of the financial crisis, U.S. household wealth underwent major changes. The wealth of middle-income households shrank by nearly 40% on average, while the wealth of affluent U.S. households grew by 2% on average over the same period.

“Why did the wealth of middle-income households shrink by 40%, while the wealth of affluent households rose slightly over the same period? The main reason lies in different investment structure arrangements,” Chen Zhiwu pointed out. Before the financial crisis, the vast majority of U.S. middle-income households placed their wealth and investments in real estate. After the financial crisis, real estate prices fell sharply, causing their wealth to shrink substantially. By contrast, financial investments accounted for a large proportion of the investment structure of affluent U.S. households, including investments in stocks, bonds, hedge funds, precious metals and other fields. After the financial crisis, financial asset prices rose. This rise on one side and fall on the other led to severe divergence in wealth.

“I mention the U.S. experience mainly to tell Chinese households that they must pay attention to diversifying investments.”

Finally, Chen Zhiwu suggested that Chinese households need more investment, but it is necessary to pay attention to diversifying investments and appropriately adjust their investment structures, and precious metals are one investment option worth considering.