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Personal Savings Dip in China
China's personal bank savings rates dipped in May, a rare phenomenon following nearly a year of slow growth.
This has caught the attention of economists who have been seeking measures to boost private spending and investment.
Bank savings by individual Chinese dropped by a surprising 34.1 billion yuan (US$4.1 billion) last month, following a slight increase of 4.4 billion yuan (US$530 million) in April, according to statistics released by the People's Bank of China, the country's central bank.
Economists, who have been urging a diversion of bank savings to support domestic demand, including commodity consumption and investment, attributed the abrupt downturn to many factors while being careful about discussing the dip's implications for the economy.
"There are a lot of reasons, including the bullish stock market, higher interest rates on foreign currencies, the real name system and the long International Labour Day holiday," said Yan Kun, a researcher at the Financial Research Office under the Chinese Academy of Social Sciences.
Stock indices at China's two bourses hit all-time highs during the past five months, largely on the back of a series of market-boosting policies, drawing a considerable sum of money from banks into the stock market. Corporate deposits by securities companies increased substantially during the first five months, especially in May.
"This should be a positive sign (as it boosts the crucial capital market)," said Wu Xiaoqiu, senior economist at the Beijing-based Renmin University of China. "But if much of the reduced savings had been converted into foreign currencies, it might have put some depreciatory pressure on the renminbi."
China raised saving rates for six major foreign currencies on May 29 in response to recent rate hikes in the international market.
He Liping, a financial professor at the China College of Finance, said the hike also siphoned savings away as many residents withdrew money from banks in May to buy US dollar in anticipation of the domestic response.
He said foreign currency savings soared in May, bringing the total increase during the first five months to US$7.8 billion.
A ban on opening bank accounts using false names, enacted by the government on April 1, to end a years-long practice that had been providing a haven for the corrupt, was also responsible, they said.
"Institutional savings disguised under false personal accounts may have been moved back into corporate accounts," Wu said. "This is also positive because it reduces banks' borrowing costs."
A spending spree during the week-long International Labour Day holiday also drained bank savings accounts. Official statistics indicated that both retail sales and service income surged by more than 20 per cent in May.
"The lasting trend should be slow growth," he said. Noting that a high savings rate would impede economic growth, he said a chronic slowdown of savings growth could also erode the payment capabilities of commercial banks.
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