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

Source: The New Economist

What Does Wealth Rebuilding During Rapid Economic Growth Mean?

Analyzing long-term cycle variables usually takes decades to encounter, but when they do, it’s for several 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 adapt to the trend.

The full text is as follows:

I’m honored to share with everyone today at Taixue. 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 Core Variable: Population

Back in 2018, I already shared about the critical turning point of 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, and everyone has noticed. But in fact, this happened ten years ago, and this data has already begun to impact the economy and investment.

I enjoy discussing population with everyone. Many say, “You’re an investor, previously worked in hedge funds, why don’t you talk about markets?” I reply, I don’t aim to cater to your tastes. I prefer to share the fundamental logic I’m thinking about directly.

Over the past few years, I’ve observed my daughter’s preferences. I invest in what she likes. 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 carry Labubu dolls, and in recent years, trendy toys, anime, Guzu, Bazhi, standees—these are popular. I also recently discussed with industry veterans in the automotive sector. They said, “Young people’s car buying habits are really different now.” I said, yes. Recently, I bought a car for my daughter, and I realized our needs and her preferences are completely different. Would she like a V8 or V12? Is she interested in mechanical performance? Would she analyze suspension or brake pads? Or would she just think, “Wow, this car is super cute”? She loves the chubby, adorable look, with six screens inside connected smoothly. From our perspective, that’s not a car. But from her perspective, that’s exactly a car.

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 the 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 should know—regardless of wealth or poverty—elderly people tend to have a habit: when you say, “Mom, I’ll be back in half an hour,” they’ll turn off the lights and air conditioning when you leave. Do you think they’re short of money? Maybe not. Sometimes, consumption habits are not entirely related to wealth but to awareness. 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.

So, at this stage, it’s difficult to release the consumption power of my parents’ generation. It often turns into savings. Although they’re not short of money, think about it: when we’re old—say, post-85s or post-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, post-00s might think: “I’ve had it tough, 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 macro cycle variable isn’t a quick change; it’s a long-term cycle. You might not need to analyze this during the reform and opening period until 2015. But after 2015 data came out, you had to analyze it. 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 typically goes through three stages: housing demand, housing investment, and speculation.

Before 2004-2005, China’s real estate was mainly driven by housing demand. With market reforms, economic growth, and population increase, we began to 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 discussions? Because war reshapes demographic structures, and it has a characteristic I think many overlook.

For example, does marriage, childbirth, having many children or few relate to money? My answer is not entirely. Many online voices say that nowadays, people are reluctant to marry, date, or have children. The main reason is pressure—buying a house, in-laws, etc. Many attribute declining birth rates to high debt leverage and life stress, but that’s only part of the picture.

In fact, after wars, in tough times, fewer children are expected. But in reality, the worse the environment, the more children are born early and early marriages happen. Population peaks occur in these age groups: under 20, 20–30, 30–40, 40–50.

After dividing populations post-WWII across countries, an interesting phenomenon emerges: the first and second generations after the war tend to marry early and have many children. Their families are large—big clans. During Spring Festival, family gatherings of 30-40 people are common. Now, it’s rare to gather even three. These large families result from early marriage and early childbirth, with each generation’s population peak close together—around age 20, they can become parents.

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

Benefits of Population Dividend

The advantage of the population dividend is that, after war, all production factors are redistributed. The most important factor is often said to be technology, but I believe it’s people. People are the most critical factor among all production elements. Don’t blindly trust technology; if technology could solve everything, there would be no normal cycles.

At this stage, people are the most vital resource for any country. As long as a country can support its population, more is better. Think about why Minnan family clans emphasize having many children—because, historically, technology was weaker than people. So, people are the most important variable in families, clans, and nations.

If, after a war, a country has enough population, it benefits from a demographic dividend. But the development of all post-WWII countries followed this pattern.

Disadvantages? First, can the population grow rapidly enough to support this? The key is whether food, clothing, housing, and transportation can match population growth—ensuring that production factors are an advantage, not a burden.

Second, the downside: if population peaks are too close, the effects may only manifest after 10 or 20 years. After rapid economic growth and wealth 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 heavily indebted individuals are very close.

After reform and opening, we accumulated wealth. Early on, housing demand improved, and housing prices rose as the 80s generation entered the city and started families. They had to take over properties from the previous generations—creating a lack of intergenerational effects, or “skip-generation” effects.

Wealth is the same; the division of the “cake” hasn’t yet reached you. This is true for all countries, not just China. Post-war population peaks are a common issue globally, including Japan, Korea, and Southeast Asia.

I’ve mentioned before the concept of intergenerational redistribution: wealth is redistributed as population shifts. If this process is too fast, some people benefit while others don’t; if too slow, labor shortages occur.

I often tell people, “You’ll see the Bank of Japan raise interest rates and experience inflation.” Many don’t understand—its economy grows only 0–1%, so how can it have inflation? That’s a huge misconception.

For most workers, what determines your wages? Market supply and demand. If labor supply increases and demand decreases, labor value drops—causing deflation. If labor supply decreases but demand remains, prices will rise due to supply shortages, even if demand isn’t growing rapidly.

Japan was 30 years ahead of us in population cycle adjustments. The key question now: does Japan need rapid economic growth to generate inflation? Many make a mistake here—economic growth is a total volume. For residents’ income growth, a crucial factor is distribution. I’ve never said Japan needs high total growth to lift residents’ incomes; rather, growth must be maintained without decline.

I’ve explained before: try to understand Japan’s intergenerational distribution. Many netizens say, “If you’re old, your money goes to your children.” But think carefully—if the population over 65 reaches 200 million, does that mean I just give my money to my kids when I’m old? Not necessarily. Sometimes, understanding is too simplistic.

If you’re over 65, what will you do with your savings? Will you give all your money to your children? Will you give your pension or retirement fund? If you’re still active at 60, you might do that. But I joke—your retirement life might be miserable.

Why does Japan have this situation? Because elderly people have children and descendants, but after they pass away, you can find millions of yen left in their drawers. Some jokes are funny, but they reflect reality. If I give all my money to my children, I might not get treatment in the hospital when I need it, or I might have my tubes pulled. If my children face financial difficulties, I can help, but I won’t give all my wealth freely. In East Asian cultures, wealth transfer often happens after the elderly pass away. Small-scale support—like helping buy a car—is possible, but giving all your money freely isn’t. When I tell my children, “I’ll spend before I go,” I mean it. I might help them a little, but after I pass, the rest is theirs. Principally, I keep my money.

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 do they do?

This relates to our investments: risk appetite declines, savings increase. Many say this is due to lack of confidence. I disagree. The phrase “lack of confidence” assumes everyone is the same—same age, same risk preference. But I see it differently: wealth distribution varies.

What’s a key factor influencing risk appetite now? In 2018–2019, I told many institutions: “It will be very hard to find a 3% fixed deposit rate in China in the future. Rates may keep falling.” I explained that rapid wealth creation and economic miracles in one generation lead to a preference for savings and risk aversion.

So, what do old people like? Saving money. They prefer low-risk investments—like fixed income, dividends, monopolistic industries such as coal, oil, water, gas, electricity—yielding around 4% dividend income is good.

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

I often tell young people: “Take a gamble—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. But if I tell a 50-something about gambling, and they’re about to retire, “Take a gamble,” what if they lose? Do they still have a chance? They prefer stability—no matter how low interest rates are, they want stability. So, risk appetite in society naturally declines. Yet, among the young, there’s still a vibrant world—just very different.

Honestly, in recent years, do you still have 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’re heirloom values. I disagree. When 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 what humans assign to it. When people change, and wealth changes, the game changes too. The same principle applies.

In recent years, I’ve invested in what young people like. I don’t judge by my values. For example, when my daughter and kids queue for milk tea—do you understand this marketing? Waiting four hours for a drink. My value is: 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 approach. So, the hottest marketing now is this—don’t promote safety, quality, engine size, or brake pads. Instead, promote features like “six screens inside for gaming.” Why? To cater to consumers. Yes, it has issues, but young people’s perceptions are different.

In the Future, These Assets Will Have No Value

It also involves other issues. Since real estate will end in the future—after 2018, the speculative phase ended. The stage of living and investing is over. The next stage is just living—people’s basic needs: eating, drinking, and shelter. Without people, there’s no housing.

You know the historical peak of real estate bubbles in Japan, Korea, and even the US? It’s called speculation—crazy speculation. Buying non-essential properties at high prices. Vacation homes, tourism properties, retirement spots—they’re all at the bubble’s peak.

Recently, I’ve been recovering in Chengdu. Do you know what’s happening there? During expansion, people move outward. When contraction begins, they return to inner rings—like the second or third ring roads. Why? Because my family has four elders. Regarding future elderly care, people won’t go to tourist or resort destinations. Public facilities are key. You’ll see many move from outer areas back to inner rings for better services—like healthcare, amenities, and community resources.

If urbanization continues, there’s still some opportunity. But if urbanization stalls, public resources will concentrate in core areas.

In Japan’s most frantic times, it was ski resorts, vacation homes, seaside apartments. Now, Japan’s real estate index has returned to pre-1990 bubble levels, but with significant disparities. The core is “living”—those who have homes are back; those without 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.

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 is critical. It shouldn’t be below 25%. If the main taxpayers are less than 25%, problems arise.

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

Some cite Japan’s data, saying the peak of urbanization was reached when the rate kept rising. But note: the final stage of urbanization isn’t about city expansion but rural disappearance. Japan’s Heisei mergers—municipal mergers—led to the disappearance of many towns and villages, increasing urbanization rates. In China, many villages might disappear, and urbanization will naturally rise.

The result? Public spending on rural roads and railways becomes unnecessary. No point maintaining bus routes in tiny villages with five households. No need to build six subway lines if urban population shrinks from 1 million to 800,000 or 600,000.

Back in 2008, with abundant labor and economic growth, all factors were in place. That’s why the saying “Build roads first to get rich” was valid—under the premise that people, economic growth, and investment returns remain unchanged.

But for countries like Japan and Korea, after reaching the peak, fixed asset investment will likely halve. The key question: what’s the population proportion of main laborers and taxpayers? When it drops below 25%, how will public finance, subways, and infrastructure sustain? In the next ten years, we’re probably at that peak too.

So, to be blunt: if real estate investment returns to “living,” the answer is: where are the people? Where there are people, there’s “living.” And when it returns to “living,” what else will happen? Huge disparities—old, dilapidated houses versus new ones. Similar to aging individuals, old and dilapidated homes can’t be massively renovated. Renovation is a product of population peaks and urbanization. Once that process completes, many old, small, dilapidated houses will be hard to demolish on a large scale. 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 gradually become less important; hospitals will become crucial, schools less so.

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 a city anymore.

At this point, you’ll see that limited resources are concentrated in cities. Development will inevitably focus on large urban clusters—that’s the current demographic trend.

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