Analysis: China’s Great Savings Migration Is Slowing Down

Summary:

There has been a clear trend in China of depositors favoring more liquid assets, with significant shifts toward M1 (more liquid forms of money) rather than time deposits. In August, year-over-year M1 growth reached 6.0%, up by 0.4 percentage points from July, while M2 stayed stable at 8.8%. This narrowing gap between M1 and M2 growth underscores a preference for liquidity among depositors. Both household and corporate time deposit growth continued to fall during this period, primarily due to declining interest rates on maturing deposits and a more attractive capital market environment which reduces the incentive to renew time deposits[para. 1].

Although the trend of deposits migrating from banks to nonbank financial institutions persists, it is progressing at a slower pace. The year-over-year increase in nonbank deposits in August was 550 billion yuan ($75.3 billion). This marks a slowdown from July's 1.39 trillion yuan increase, but still demonstrates ongoing momentum. Most of the increase does not appear to stem from fixed-income products or nonbank lending, as asset management product growth is declining and new nonbank loans are minimal. Instead, deposit movement is primarily toward the equity market, as evidenced by only a modest 140 billion yuan year-over-year growth in bank issued wealth-management products[para. 2].

Capital market activity has become markedly more vibrant. In August, A-shares’ average daily trading volume hit 2.3 trillion yuan, up 29% from July, while margin financing balances rose 21% to exceed 2.3 trillion yuan. The number of newly opened accounts on the Shanghai Stock Exchange surged by 35% to 2.65 million. Passive investment funds have grown faster than active ones since the start of the year, establishing themselves as a significant conduit for savings entering the market. Prior to the recent rally, household deposits were at an historic high as a proportion of the total market capitalization (around 210%); after the rally, this ratio decreased but remained robust at 157%[para. 3].

Even with abundant liquidity—demonstrated by a 0.4 trillion yuan year-over-year increase in central bank liquidity injections and low interbank rates (about 1.5%)—deposit creation is less vigorous. In August, real-economy deposits grew by only 1.7 trillion yuan, which is a 0.6 trillion yuan decrease year-over-year. The moderation is due to weakening deposit creation from both credit supply and fiscal spending, with new loans and government bond issuance both falling substantially from the previous year[para. 4].

On the international front, cross-border capital inflows have decelerated. While the yuan remained strong in August and the 12-month net foreign exchange settlement surplus continued to grow (by $14.5 billion year-over-year), the rate has slowed from previous months, reflecting weaker export growth and a slight reduction in net investments through programs like southbound Stock Connect[para. 5].

In summary, the trend of savings migration to more liquid deposits and the capital market continues, but at a slightly slower pace. The slowdown is attributed to earlier front-loaded fiscal and credit stimulus, growing investor disagreement as stock prices rise, and decelerating export-driven capital inflows. Furthermore, central bank support for financial corporations appears to be winding down as market conditions improve. Looking ahead, while the transition won’t occur abruptly, an estimated 5–7 trillion yuan in savings could still migrate over the medium term as time deposits are repriced and excess savings are deployed[para. 6].