Commentary: Can China’s Household Savings Fuel a Bull Market?

The article discusses recent trends and drivers behind China's capital markets, focusing on various sources of incremental funds such as household savings, insurance funds, private equity, public funds, foreign capital, and state-backed stabilization funds, along with their impacts on market dynamics[para. 1].

Recent rounds of deposit interest rate cuts beginning in September 2022 led to a decline in household and corporate deposit growth in 2023, while non-bank deposits increased primarily due to an April 2024 ban on “manual interest supplements.” This policy shift caused a decline in corporate deposits without yet triggering significant movement of household savings into the markets. Currently, an estimated 4.25 trillion yuan ($582 billion) in excess household savings has built up since 2020. Despite dwindling deposit appeal due to low returns, a clear trend of retail funds moving into riskier or alternative investments has not emerged, with factors such as conservative risk appetite, a lack of enticing options, and early mortgage repayments holding savers back. However, policymakers’ efforts to “invigorate the capital market,” combined with persistent asset shortages, suggest that capital markets could eventually absorb this liquidity. Should household funds begin moving into equities, this could directly expand market capital, boost trading activity, and create a wealth effect that further attracts individual investors[para. 1][para. 2][para. 3].

Regarding insurance funds, reforms and policies—such as requiring large state-owned insurers to allocate 30% of new premiums to A-shares—are fostering the institutional groundwork for greater long-term participation in equities. In 2025, insurance funds became a key driver of stock rallies, especially focusing on the banking sector due to alignment with their investment characteristics. Five major insurers (China Life, Ping An, PICC, China Pacific Insurance, New China Life) are estimated to inject between 400 billion and 900 billion yuan in incremental funds into the stock market in 2025; the potential could reach 1 trillion yuan depending on calculation methods[para. 4][para. 5].

Private equity is also contributing significantly, with risk appetite rebounding since early 2025 and fund allocations increasingly directed towards small- and micro-cap stocks. Notably, the CSI 1000 Index outperformed the larger-cap CSI 300 Index during the first half of 2025, rising 9.6% compared to 3.0%. Top private equity managers are increasing their equity allocations, signifying a shift from contraction to expansion across the sector[para. 6].

Public equity funds saw incremental growth mainly from passive (index-tracking) funds and ETFs from the second half of 2024 onward. ETF activity has surged, but as of July 2025, stock ETFs only make up 2.9% of A-share market capitalization—suggesting considerable room for expansion. Based on current growth rates, the market size of Chinese ETFs could rise to 8 trillion yuan within five years[para. 7][para. 8].

Foreign capital, though making up just 2.36% of A-share capitalization as of early 2025, exerts significant influence. Stable renminbi exchange rates and improving wealth effects may spur annual foreign capital inflows of around a hundred billion yuan through channels like Stock Connect and QFII/RQFII[para. 9].

State-backed stabilization funds, holding 3.9% of A-share capitalization as of Q1 2025 (primarily in financial stocks), could increase their presence to 5%. This expansion would bring at least an additional 1 trillion yuan in incremental capital, with policy support and unified fund management strengthening the “national team” role as market stabilizers[para. 10].