China’s Household Savings Drop Again as Funds Flow into Stocks

In July and August, household savings in China shrank compared to the previous year, while deposits from non-bank financial institutions saw a significant increase. This suggests that individuals have been shifting their money from savings into the stock market over the last two months, driven by record-low interest rates, recent data shows.

Last month, new household deposits decreased sharply by 84.5% year-over-year to CNY110 billion (about USD 15.4 billion), according to data released by the People’s Bank of China on September 12. Conversely, deposits from non-bank financial institutions—which include securities firms, fund companies, and insurance companies— surged by 84.6%, reaching CNY1.2 trillion (roughly USD 168.5 billion).

These two types of deposits are interconnected: when households invest in stocks or funds, they typically transfer money from their personal bank accounts to accounts held by brokers or fund providers. Therefore, simultaneous declines in household deposits and increases in non-bank deposits generally indicate a heightened interest in investing among savers.

In July, household deposits plummeted by CNY1.1 trillion (about USD 154.5 billion), a figure three and a half times larger than the same period last year. Meanwhile, deposits from non-bank institutions tripled over the year to CNY2.1 trillion, reaching the highest level for July since 2015.

The stock market has also reflected this trend, experiencing a bullish run since May. The Shanghai Composite Index rose by 3.7% in July and another 8% in August, hitting its highest level since August 2015 on September 12 at 3,892.74 points.

Since July, macroeconomic conditions have improved, according to Wang Jian, a chief financial analyst at Guosen Securities. Regulatory measures aimed at curbing “involution,” a term for overly aggressive and unproductive competition, have boosted optimism about long-term fundamentals, helping to drive the stock market upward.

With bond yields remaining at historically low levels, fixed-income investments have become less attractive, prompting investors to move capital into equities, Wang added.

The central bank’s monetary easing has pushed deposit rates to record lows. In May, major state-owned banks reduced their deposit rates for the seventh time since September 2022. The one-year deposit rate fell by 15 basis points to 0.95%, dipping below 1% for the first time ever.

Despite these low rates, credit growth remains sluggish. In the first eight months of the year, yuan-denominated loans grew by CNY13.5 trillion (USD 1.8 trillion), which is CNY970 billion (USD 136.2 billion) less than the same period last year. This indicates that both companies and consumers are still exercising caution, according to the People’s Bank of China.