Why Do Most Chinese Lose Money in the Domestic Financial Market?

n recent years, financial investment in China has seemingly morphed into a high - risk game. Across different social strata, from ordinary individuals to the middle class and the wealthy, people seem to be vulnerable to financial setbacks. A popular saying vividly depicts the situation: "Ordinary people fail with P2P, the middle class stumbles in stock trading, and the rich falter with defaulting trusts... " Despite the diverse manifestations, the underlying causes are often common taboos in investment and finance.​

I. The Unrealistic Trilemma in Investment​

For more than a decade, when high - end wealth management teams from banks, like myself, visited clients in China, especially in regions like Wenzhou and Ningbo where Zhejiang businesspeople are concentrated, we often encountered difficulties in promoting investment concepts. One of the fundamental principles we tried to convey is the "impossible trinity" of investment: low risk, high return, and good liquidity cannot be achieved simultaneously. In fact, most investment products in the market can only satisfy at most two of these three conditions.​

However, some Zhejiang entrepreneurs would quickly present their "fist products" to refute this. They claimed that their private lending could offer an annualized return of over 20%, with the flexibility of withdrawal at any time and complete safety. But as we know now, this type of private lending, which was prevalent in small entrepreneur circles and based on mutual guarantee and trust, has become a disaster area of private financial defaults in recent years. Many entrepreneurs involved have suffered heavy losses.​

When dealing with high - net - worth investors in China, the most frequently asked question is: "What is the 'highest - return' financial product you can offer?" I always answer frankly that risk and return are directly proportional, and there is no investment product with low risk and high return in the world. Our role is to allocate suitable investment portfolios based on the client's risk tolerance and willingness, so as to achieve a reasonable return commensurate with the risk taken. As for almost risk - free returns, they are around 2% per year, similar to the returns of national bonds, money market funds, or "demand - based financial products" provided by banks.​

These are logical common - sense statements. However, investors are often reluctant to make investment decisions based on them. Industry professionals even joke that only scammers can meet clients' requirements for high returns, safety, and good liquidity.​

II. The Allure and Trap of High - Return Products​

In response to investors' preferences, various Internet financial platforms in the past hyped up products with the promise of "flexible terms, high returns, and great safety", as if these were windfalls from the sky. In reality, they were traps for investors.​

Take one of the P2P pioneers, ezu bao, as an example. It was promoted as a "financial product similar to Yu'E Bao but with much higher returns". It claimed to adopt the A2P model, generating returns for clients through the transfer of financial lease claims, with annual interest rates ranging from 9% to 14.6%. But the question is, at that time, the general capital cost of financial lease assets was only around 7%. How could it generate returns of 9% - 14.6% for investors? Eventually, it turned out to be a huge Ponzi scheme, and investors suffered huge losses.​

Ordinary people, who are eager to get rich but often lack patience, are attracted by the promise of high returns and instant profits. P2P operators took advantage of this weakness, promising risk - free, high - yield returns. They even used so - called "fintech" to allow investors to see daily returns on the platform and receive interest monthly or weekly. As a result, a large number of ordinary people invested their life savings in P2P, and some even borrowed money to participate, ultimately leading to massive failures in the P2P sector.​

III. Flawed Investment Behaviors in the Stock Market​

In the stock market, most middle - class investors often rely on hearsay and short - term trend speculation to make investment decisions. The number of investors who conduct in - depth research, identify long - term high - quality companies, and grow with them is relatively small. This is the root cause of most people's long - term losses in the stock market.​

Stock investment requires a deep understanding of the fundamentals of listed companies, including their business models, competitive advantages, management teams, and financial conditions. However, many investors lack the necessary time, energy, and professional knowledge to conduct such in - depth research. Instead, they rely on tips from friends, rumors in the market, or technical analysis of short - term stock price trends. This approach is highly speculative and often leads to losses.​

For example, some investors may buy stocks based on a piece of positive news about a company, without fully considering whether the news can actually translate into long - term profitability. Once the market sentiment changes or the company fails to meet expectations, the stock price may plummet, resulting in losses for investors.​

IV. Over - allocation of Real Estate and Ignorance of Risks​

Chinese wealth holders generally have an over - allocation of real estate. As housing prices have risen steadily over the years, the proportion of real estate in the asset portfolios of Chinese people has become increasingly high. However, people have turned a blind eye to the fact that the rental return rate of residential real estate in China has been generally below 2% for many years, and its liquidity is poor. In the long - term economic adjustment cycle, the risks and returns of real estate investment are not well - matched. This situation continued until the inflection point of housing prices arrived a few years ago.​

Real estate investment is not without risks. In addition to the relatively low rental return rate and poor liquidity, factors such as changes in national real estate policies, economic downturns, and oversupply in the housing market can all have a significant impact on housing prices. However, many investors, driven by the continuous rise in housing prices in the past, believed that real estate investment was a one - way bet with only upside potential. They ignored the potential risks and continued to pour a large amount of capital into the real estate market. When the real estate market entered a downward cycle, these investors faced the dilemma of asset devaluation and difficult liquidation.​

V. Lack of Investment Knowledge and Rationality​

From a social perspective, the lack of logical education and financial quotient training among the Chinese people is also an important factor contributing to investment losses.​

Logical education can help people form the habit of using logic, common sense, and reason when evaluating investment plans. In the process of wealth management, respecting logic and fearing common sense can help people avoid obvious investment traps that violate logic and common sense. However, due to the lack of systematic logical education in the education system, many people lack the ability to think rationally about investment issues, making them vulnerable to the lures of high - return investment products.​

Financial quotient training can popularize basic investment knowledge and the principle of risk - return matching for people of all social classes, enabling them to resist the temptation of being misled by "grand narratives" by some people with ulterior motives. But currently, the popularization of financial knowledge in China still has a long way to go. Many people do not understand basic investment concepts such as risk diversification, asset allocation, and the time value of money. As a result, they make irrational investment decisions, such as concentrating all their funds in a single investment product or chasing hot investment concepts without considering their own risk tolerance.​

In conclusion, the reasons why most Chinese people lose money in the domestic financial market are multifaceted, including unrealistic investment expectations, the allure of high - return traps, flawed investment behaviors, over - reliance on real estate investment, and lack of investment knowledge and rationality. To change this situation, it is necessary to strengthen investors' education, improve the regulatory environment, and guide investors to establish a rational investment philosophy.​

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