SHANGHAI/SINGAPORE (Reuters) – China’s increasingly urgent effort to pour its savings into the economy has been met with savers shying away from all but the safest investments, a recent sign that weak confidence is holding back post-pandemic spending and growth.
The latest move – urging the “big four” state banks to cut the highest deposit rates this month – only seems to have led to a rush on other deposit products and government debt, suggesting caution is so great it will be difficult to change.
Television footage this week showed early morning queues at Beijing banks to buy treasury bills, while newspapers carried stories of young investors riding trains and buses to distant branches in search of the highest deposit rates.
Bankers told Reuters they ran out of bonds shortly after opening. Yields on government debt – which fall as prices rise – fell to levels not seen since November, when the economy was still throttled by China’s zero-tolerance policy to fight COVID-19.
The trend defies expectations that savings would flow back into stocks and consumption once virus controls were lifted, and as term deposits have increased, it seems even more unlikely to happen.
“The 8 trillion yuan surge in new household deposits in 2022 sparked some bullish market views that this…would lead to a massive release of post-pandemic pent-up demand,” said Ting Lu, chief economist for China at Nomura.
“Deposits from new households, however, continued to rise,” he said.
“The real barrier to China’s post-COVID recovery is not high borrowing costs or lack of liquidity. In our view, it is the diminished confidence of the private and household sectors… and the low velocity of money.
Total yuan deposits neared a record 274 trillion yuan ($40 trillion) at the end of April, dwarfing the mainland stock market capitalization of 84 trillion yuan and gross domestic product of 121 trillion yuan traps.
Personal deposits also hit an all-time high, and PBOC data showed that time deposits, which can offer as little as 1%, are growing particularly fast.
They rose 8.9% from January to March at major banks to 25 trillion yuan, and rose 11.1% at smaller lenders, and Goldman Sachs analysts said this implies that households are unlikely to spend money they put on have timed bills.
The trigger for the surge in savings is unclear, but as the real estate market falters due to a crackdown on overleveraged developers and the ebb of momentum in the stock market, savers say they are willing to sacrifice returns for safety.
“These certificates of deposit guarantee the principal, so they offer stable returns,” said a depositor in her 50s with a fixed term, who gave her surname Wang and said she was not deterred by falling interest rates.
“I will continue to save most of my money,” she said. “I don’t think stocks will perform well this year.”
China has historically had high savings rates as a percentage of GDP – by far the highest of any major economy, according to the World Bank.
It’s not necessarily a problem, but when combined with capital controls preventing investment abroad and disappointing domestic credit growth, it reflects weak domestic consumption and is a sign that money is not easily finding its way to productive businesses.
Official data this week showing weak imports and increasing producer price deflation underlined the challenge. The benchmark 10-year Chinese government bond yield fell to a six-month low of 2.694% on Thursday.
“The problem for the recovery in consumption is a loss of confidence due to the now-abolished zero-COVID policy and the problem in the real estate market,” said Chi Lo, senior investment strategist at BNP Paribas Asset Management in Hong Kong.
“While these two biggest economic impediments have been addressed, confidence will only slowly recover – confidence would not return like the flip of an on/off switch.”
($1 = 6.9121 Chinese Yuan Renminbi)
Edited by Simon Cameron-Moore