Cover Story: Where Best to Invest in China’s Low-Interest-Rate Era (AI Translation)
Listen to the full version
文｜财新周刊 丁锋 吴雨俭 刘冉 全月 王力为
By Caixin Weekly Ding Feng, Wu Yujian, Liu Ran, Quan Yue, Wang Liwei
最近，李真（化名）2020年初在银行存的一笔5万元5年期定期存款到期了，按照当时4.2%的年利率算，她拿到了10477元的利息。不过，当她准备续存时却犯了愁，如今国有大行的5年期定期存款利率只有1.6%左右，即使一些小规模民营银行，最高也只有不到3%。想寻找其他收益稳定且安全没有后顾之忧的替代产品并不容易，因为无论是银行理财还是货币基金，年化收益率超过3%的都不多。
Recently, Li Zhen (a pseudonym) found that the five-year fixed deposit of 50,000 yuan she placed in early 2020 had matured. At the then annual interest rate of 4.2%, she received 10,477 yuan in interest. However, she faced a dilemma when it came to renewing the deposit, as the current five-year fixed deposit rates at major state-owned banks have fallen to around 1.6%, and even smaller private banks offer no more than 3% at most. Finding other stable and worry-free alternatives with a good return is not simple, as few banking wealth management products or money market funds offer an annualized return rate exceeding 3%.
人们开始用“低利率时代”来描述当下的市场环境，中国金融市场正进入陌生水域。
People have begun to use the term "era of low interest rates" to describe the current market environment, as China's financial market is entering uncharted waters.
中国的利率体系可以分为三层。第一层是政策利率，是直接由央行调控的利率。一般说到“央行降息”，就是指政策利率下调。目前，公开市场操作7天期逆回购利率是政策利率。2024年，央行降息两次、共计30个基点（BP），开启降息通道。第二层是市场基准利率，对其他市场利率和资产定价起到引导作用。例如，贷款市场报价利率（LPR）就是贷款定价的基准；10年期国债收益率作为长期无风险利率，被视为债市基准利率。最后，央行的货币政策意图经过利率体系的层层传递，抵达第三层，即市场利率。企业、储户日常接触到的存贷款利率都属于市场利率。
China's interest rate framework can be divided into three tiers. The first tier is the policy rate, directly controlled by the central bank. When people refer to a "central bank rate cut," they are referring to a reduction in the policy rate. Currently, the 7-day reverse repurchase rate from open market operations serves as the policy rate. In 2024, the central bank cut rates twice, totaling 30 basis points (BP), initiating a rate-cutting cycle. The second tier consists of market benchmark rates, which guide other market rates and asset pricing. For example, the Loan Prime Rate (LPR) serves as the benchmark for loan pricing; the yield on the 10-year government bond, considered a long-term risk-free rate, is viewed as the benchmark rate in the bond market. Finally, the central bank's monetary policy intentions are transmitted through the tiers of the rate framework to reach the third tier, which is the market interest rates. The deposit and loan rates that businesses and depositors encounter daily are part of the market interest rates.
- DIGEST HUB
Digest Hub
Back
- Li Zhen's 50,000 yuan deposit matured, yielding 10,477 yuan in interest but faced a dilemma with lowered renewal rates, reflective of China's ongoing transition to a low-interest-rate environment.
- China's interest rate structure includes policy rates, market benchmark rates, and market interest rates, with ongoing declines influenced by economic transformation and policy adjustments.
- Analysts suggest diversifying investments during low rates, with preferences shifting towards stable, high-yield options like U.S. dollar products, gold, and high-dividend stocks amid declining bond and fund yields.
Li Zhen recently faced a financial dilemma when her five-year fixed deposit matured at significantly lower interest rates compared to when she initially invested. The environment in China is being described as an "era of low interest rates," with major banks offering lower returns on fixed deposits compared to previous years. This reflects the broader economic transformation China is undergoing, characterized by moderate monetary policies and declining interest rates [para. 1].
China's interest rate framework consists of three layers: policy rates under central bank control, market benchmark rates guiding asset pricing, and market interest rates encountered by businesses and consumers. A notable shift towards lower interest rates began in 2014, bringing China into a period of low rates, similar to what has been experienced in other major economies like the U.S. and Japan. Financial reform and strategic adaptation to this low-interest environment are imperative for both individuals and institutions [para. 2][para. 3].
Countries such as the U.S., Europe, and Japan have navigated through periods of low interest rates before, influencing shifts in investment preferences towards stable, lower-risk assets. Chinese investors now exhibit caution, especially following losses in the stock market and shifts in banking strategies due to reduced profit margins. Financial institutions are adapting to increasingly competitive markets with tightened interest margins and evolving product landscapes [para. 4][para. 5].
The trend of decreasing rates is apparent across various financial products, with dollar deposits and wealth management offerings becoming comparatively attractive due to higher returns. Many investors are now looking towards U.S. dollar products, considering them a better alternative amid the volatile RMB returns. Investment in equities like high-dividend stocks, as well as precious metals like gold, have gained popularity as they offer both stability and potential capital gains [para. 6][para. 7][para. 8].
Historically, in low-interest environments, global trends have shown an increase in allocations towards liquid and low-risk financial assets, with reductions in equities. Chinese residents are also adjusting their financial asset structures accordingly, focusing more on safer investments and exploring options like U.S. dollar products and gold. Additionally, the overseas asset management sector in Japan demonstrates how substantial foreign investments can mitigate low domestic interest rates [para. 9][para. 10][para. 11].
Bond funds in China have surged amidst this low-rate era, holding a significant portion of the public fund market. However, maintaining momentum in bond yields remains challenging due to diminishing returns on bond investments. The investment strategy for bond funds is expected to focus more on extending durations while cautiously navigating credit downgrades [para. 12][para. 13][para. 14].
The Chinese banking sector is also experiencing pressures from narrowing net interest margins. Strategies used by banks globally, such as reducing risk appetites and harnessing non-interest income streams, are now crucial. Chinese banks strive to balance asset acquisition and liability cost management while exploring new revenue streams in this constrained interest landscape [para. 15][para. 16][para. 17].
In the life insurance industry, declining interest rates have exacerbated challenges related to interest spread losses, reminiscent of the issues faced in the 1990s with high-interest policies. Strategies to mitigate these impacts include reducing assumed interest rate ceilings, optimizing product structures, and increasing global asset allocations. However, challenges remain due to market constraints and regulatory policies governing foreign investments [para. 18][para. 19][para. 20].
As China uniquely navigates its low-interest phase in comparison to other economies, emphasis on strategic asset management, global allocation, and regulatory evolution becomes critical. These adjustments aim to bolster financial returns and provide stability in the face of economic shifts, aligning with practices observed in foreign markets where low-interest environments prevail [para. 21][para. 22].
- CMB Wealth Management
招银理财 - CMB Wealth Management, along with other financial institutions, has been adjusting its product performance benchmarks due to the low-interest-rate environment. As of January 2025, CMB Wealth Management announced adjustments to its investment product benchmarks, lowering them significantly compared to previous periods, reflecting the ongoing challenges in achieving high returns amid declining interest rates.
- CMBC Wealth Management
民生理财 - In 2025, CMBC Wealth Management plans to lower the performance benchmarks for its wealth management products by several basis points, reflecting a broader trend in the market. As part of this adjustment, CMBC announced changes to the performance benchmark for a specific investment cycle of its "Zhaorui Zhuoyuan Series" fixed-income wealth management plan, dropping the upper range from 4.20% to 2.60%.
- Huaxia Wealth Management
华夏理财 - Huaxia Wealth Management is among the financial companies that have recently announced a reduction in performance benchmarks for their financial products. This trend was observed in early 2025, indicating a decrease in expected returns amid a broader low-interest rate environment.
- BOC Wealth Management
中银理财 - The article mentions BOC Wealth Management in the context of adjusting its performance benchmarks due to the low-interest environment. Since the beginning of 2025, several wealth management companies, including BOC Wealth Management, have announced reductions in their product performance benchmarks, with decreases in the range of several basis points, in response to the ongoing decline in interest rates and returns on financial products.
- Huayuan Securities
华源证券 - According to the article, Huayuan Securities noted that the average performance benchmark lower limit of newly issued wealth management products might fall below 2% in 2025.
- Bank of East Asia
东亚银行 - The Bank of East Asia offers competitive interest rates on USD deposits. Currently, for a deposit of $1,000 to $2,000, the interest rates are 3.4% for 3-6 months and 3.5% for 12 months. For deposits over $2,000, the rates are 4.4% for 3-6 months and 4.5% for 12 months, reflecting higher yields compared to domestic options in China.
- China Merchants Bank
招商银行 - The article mentions that China Merchants Bank offers dollar wealth management products with performance benchmarks typically ranging from 3% to 4.5%. These products are primarily invested in US dollar bonds, appealing to investors seeking alternatives to yuan deposits amid low domestic interest rates.
- Everbright Securities
光大证券 - In the article, Everbright Securities' financial industry chief analyst Wang Yifeng suggests that in a low-interest environment, the banking sector in China needs to continually enhance asset-liability management capabilities, improve net interest margin control, and sustain relatively stable net interest income.
- Industrial and Commercial Bank of China
工商银行 - In the article, an Industrial and Commercial Bank (ICBC) branch manager mentions that high-interest asset acquisition focuses on small and medium enterprises, supply chain, and tech firms. The bank uses benefits and certain government subsidies to maintain reasonable real rates for these markets. Meanwhile, striving to avoid excessive consumer lending due to repayment uncertainties, ICBC seeks to maintain a balance in loan quality, focusing predominantly on asset management in China's evolving economic landscape.
- UBS Securities
瑞银证券 - The article references UBS Chief Japan Economist and former BOJ official, Masamichi Adachi, who discusses how Japan has adjusted to zero interest rates. He notes that despite zero rates, Japanese people don't worry much about deposit purchasing power erosion due to deflation leading to cheaper goods over time, which offsets zero interest rates' effects.
- Zhongtai Securities
中泰证券 - Zhongtai Securities' financial industry analysts, led by Dai Zhifeng, analyzed interim reports from 42 A-share listed banks. In the first half of 2024, they observed a 1.3% year-on-year increase in overall non-interest net income, driven largely by a 22.8% rise in other non-interest net income from investment returns and fair value changes, despite a 12% drop in fee income.
- CICC
中金公司 - The article does not specifically mention CICC (China International Capital Corporation) or provide any direct information about it. It discusses the broader financial environment in China, focusing on the low-interest rate era and its implications for personal investors, financial institutions, and the insurance industry.
- Haitong Securities
海通证券 - Haitong Securities' report notes that during rapid interest rate declines, overseas residents tend to increase holdings in liquid, safe financial assets like cash and deposits, while reducing equities and investment funds. This shift occurs due to significant macroeconomic changes driving demand for low-risk assets. As interest rates stabilize, asset allocation varies: U.S. and German residents may reallocate to equities, but Japanese residents often maintain higher deposit allocations.
- Early 2020：
- Li Zhen placed a five-year fixed deposit of 50,000 yuan
- 2021：
- China's interest rates began a downward trajectory
- September 2022：
- Banking industry underwent six rounds of concentrated deposit rate cuts
- Beginning of 2024：
- Largest money market fund, Tianhong Money Market Fund, had a 7-day annualized yield of 2.4%
- Throughout 2024：
- The central bank initiated a rate-cutting cycle with two cuts totaling 30 basis points
- Throughout 2024：
- Bond funds experienced a significant boom
- 2024：
- Yield on 10-year government bonds dipped below 2%, market witnessed strong performance of banking sector stocks, public mutual funds reached ¥31.94 trillion, and seven-day annualized yield of some money market funds fell below 1%
- End of 2024：
- Public fund scale expected to approach 32 trillion yuan; QDII quota approved by SAFE at $167.789 billion
- Beginning of 2025：
- Dollar deposits and wealth management products remain popular
- January 6, 2025：
- CMB Wealth Management announced a decrease in performance benchmarks for investment period starting January 15, 2025
- By 2025：
- Yield of Tianhong Money Market Fund hovered around 1.2%
- PODCAST
- MOST POPULAR
Sign in with Google
Sign in with Facebook
Sign in with 财新