Chinese investors are turning to the financial 'safe havens' of gold and the US dollar as China's economy is set to slow even further in year of the monkey.
By
Katrina Yu

1 Feb 2016 - 9:56 PM  UPDATED 3 Feb 2016 - 6:36 PM

In China buying gold to give as a gift to loved ones for lunar new year is tradition. The precious metal symbolises wealth and good fortune.

"It's a very stable and familiar way to invest money, especially for the older Chinese," says Laura Luo, a Beijing-based communications professional.

"But I've chosen to invest in US dollars. I travel quite often and for me it made the most sense," she says.

Luo has chosen to convert half her savings into US dollars because she says there are no other options for Mainland Chinese.

"Usually we go to the stock market, but now the stock market is crashing."

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Once a boon for speculators, China's once-booming stock market took a dramatic turn last winter. More than three trillion US dollars in wealth was wiped from China's stock market in less than three weeks.

The market seemed to momentarily restabilise, only to plummet twice in the early weeks of 2016. This triggered market-halting emergency circuit breakers which have since been removed.

The Shanghai Composite Index sunk by more than 20 percent, recording the worst January performance in the Chinese stock market's 26-year history.

"Everyone's worried about their assets. As Chinese we have a lot of our security in our savings, so everyone is being super cautious, especially in this climate," says Luo.

In China approximately 35 per cent of household income goes into savings.

The country’s growth, which last year ground to its lowest point for 25 years, 6.9 percent down from 7.3 percent the previous year, is expected to slow further.

Economist Andrew Polk says further wage cuts and job losses are inevitable.

"The problem is, as the economy slows - as those upstream sectors, steel, cement, real estate, all those things slow down - you are going to get suppressed wage growth, you’re going to get more layoffs," Polk says.

He says that the Year of the Monkey will be "a year of volatility," and Australians will certainly be affected.

"China will be more of a wildcard for Australia this year... We should expect more gyration. Gyration in Yuan will send gyration into the Aussie dollar, something to watch," Polk says.

"Usually we go to the stock market, but now the stock market is crashing."

But despite the grim forecast, Polk says the Chinese economy is making progress in other ways. "The services part of the economy that's booming and that’s good because it’s an area of the economy that’s more labour intensive and that will help to relieve some of the upward pressure on unemployment."

He also sees the jitters as a sign that the market is maturing and becoming more robust in the long-term. "

People watching from the outside see the stock market, see the currency and think, oh my gosh China’s economy is collapsing. That’s not the case by any means," says Polk.

The lower Yuan is also pegged to boost domestic tourism, as well as exports.  Laura Luo says she definitely won't be travelling overseas as much this new lunar year. But, optimistic about the stock markets' future, she will be watching for a good time to buy in when it hits rock bottom.

"I think the market will eventually go up, so you might as well get in while the assets are cheap," Luo says.

Watch an extended interview with economist Andrew Polk: