Analysis: China’s Great Savings Migration to Stocks

The commentary analyzes a significant trend emerging in 2025: the migration of household deposits into China’s stock market, driven by improving economic expectations and a higher household risk appetite. Early indications of this shift appeared in May, with several measurable changes. Firstly, there has been a move from term to demand deposits, reflected in July’s M1 money supply growing by 5.6% year-over-year, a marked increase from May’s 2.3%. The trend of deposits moving into term accounts reversed for the first time since 2023, suggesting that maturing fixed-income products are not being reinvested, thereby unlocking a pool of funds likely to enter equity markets. Simultaneously, the growth of equity-focused mutual funds and private investment funds has accelerated, while fixed-income product growth slowed. Additional evidence includes a notable rise in nonbank deposits—up 1.4 trillion yuan ($197 billion) year-over-year in July—most likely driven by capital moving into brokerage accounts. The Shanghai Stock Exchange saw new account openings increase by 26% between May and July, and daily A-share turnover plus margin financing balances both exceeded 2 trillion yuan as of August, signaling increased market activity. [para. 1][para. 2][para. 3][para. 4][para. 5]

The sources of these funds stem largely from “excess savings” amid ample liquidity and moderate risk appetite in Chinese households. Rather than deleveraging and reducing both deposits and loans as witnessed in Japan’s 1990s “balance-sheet recession,” China has maintained robust M2 and total social financing growth rates of 7–8%. Key factors facilitating deposit growth include increased government fiscal spending and a higher contribution from the balance of payments to deposit creation (53% and 6%, respectively, by July 2025), with the contribution from credit falling to 41%. Countercyclical lending by large state-owned banks, directed at SOEs, infrastructure, and inclusive finance, has offset the property sector’s drag. Meanwhile, regulatory measures and lower deposit rates initially created financial disintermediation, shaving around 12 trillion yuan off real economy deposits in 2024; this drag lessened to 8 trillion yuan by July 2025 as funds returned from non-bank institutions, boosting deposit growth. [para. 6][para. 7][para. 8][para. 9]

Four main reasons are behind the migration of deposits to stocks. First is improved risk appetite resulting from the “Sept. 24” stimulus and positive economic themes, particularly affecting middle- and high-net-worth clients. Second, a recovering stock market has led the 12-month average A-share return to reach around 20%, similar to conditions in previous bull markets, which typically sparked significant deposit migration. Third, the US dollar’s weakness has prompted global and Chinese investors to reduce their US stock holdings—$60 billion less as of May 2025—redirecting funds back into China. Fourth, weak private-sector investment growth (-1.5% in July 2025 compared to 3.5% for SOEs) incentivizes capital to flow into more promising capital markets rather than real-economy projects. [para. 10][para. 11][para. 12][para. 13][para. 14]

As of July 2025, household deposits totaled about 160 trillion yuan, four times the free-float A-share market capitalization (43 trillion yuan). Analysis estimates that 5–7 trillion yuan could potentially transfer from household deposits into the stock market, exceeding inflows from earlier rallies. This capital comes from 5 trillion yuan in “excess savings” accumulated since 2022, about 7 trillion yuan in maturing term deposits repriced to lower rates, rising household demand deposits tracking M1 growth, and a potential 1 trillion yuan net increase in nonbank deposits if trends accelerate. IPO activity is currently low (60–70 billion yuan in 2025), intensifying the impact of household deposits entering the market. Outcomes depend on macroeconomic conditions, policies, and external factors, and figures are for reference due to the complexity of financial flows. [para. 15][para. 16][para. 17][para. 18][para. 19][para. 20]