Where Are Residents’ eposits Going?

With the adjustment of the monetary policies, the residents’ deposits and the banks’ credits in China have taken on a new development trend.

With the newly-added credit of 1.53 trillion yuan (USD 223.9 billion) in June and the “dynamic minor adjustments” to the monetary policies, the economists forecasted the credit amount would fall back to 500 billion yuan (USD 73.17 billion) in July. However, the People’s Bank of China (PBOC), or the central bank, published the number on August 11, which was different from the prveious expectation. The total amount of newly-added credit loans in July was 355.9 billion yuan (USD 52.08 billion), having an apparent decrease compared with the added amount in the previous months. The broad money supply (M2) saw a 28.42% year-on-year increase at the end of July, lower than the market expectation.

Meanwhile, the amount of residents’ deposits reduced by 19.2 billion yuan (USD 2.81 billion) at the end of July. This is the first time of decrease in the residents’ deposits since October 2007. Some analysts thought that the decreased deposits might flow into the stock market.

Obvious Changes to the Credit Structure

The central bank’s data showed that the balance of different loans of the financial institutions in China was 38.1 trillion yuan (USD 5.58 trillion) at the end of July, up 33.9% from last year. The growth rate was 15.17 percentages higher than the end of last year and 0.54 percentages lower than June. From January to July the total amount of newly-added loans was 7.73 trillion yuan (USD 1.13 trillion), 4.89 trillion yuan (USD 715.6 billion) more than the same period of last year.

“The total amount of newly-added credit in July was lower than expected,” said the economist Lu Zhengwei in his blog.

On August 1, the research department of Bank of Communications issued a report, forecasting that the total amount of newly-added loans in August would be between 500 billion yuan (USD 73.17 billion) and 600 billion yuan (USD 87.8 billion). Before that, Industrial Bank’s capital operation center made a forecast that the newly-added loans would be between 400 billion yuan (USD 58.54 billion) and 600 billion yuan (USD 87.8 billion).

In Lu Zhengwei’s opinion, the banks issued a large amount of bills in March, most of which have expired in July, turning the bill financing into the middle- and long-term credit loans. This was an important reason for the slowdown of the growth rate of the credit loans. In addition, the macroeconomic polices tend to control the credit amount.

The macroeconomic analyst of Shenyin & Wanguo Securities Co., Ltd Li Huiyong thought that the total amount of credit loans will be increased in the second half year though the growth rate will be much smaller. He forecasted that the monthly increase of the credit amount will be around 300 billion yuan (USD 43.9 billion).

What’s noticeable is that an insider of the central bank explained the July’s credit data like this: “In July, the newly-added resident home loans saw a year-on-year increase of 188.7 billion yuan (USD 27.62 billion) and the newly-added middle- and long-term loans increased by 340.4 billion yuan (USD 49.81 billion). The newly-added bill financing decreased by 274.9 billion yuan (USD 40.23 billion) from the same period of last year. The credit structure changed obviously.”

The insider also said: “Though the newly-added credit amount was smaller than the previous months, it was still much higher than the average level of the same period in the past seven years.”

Moreover, the PBOC’s data showed that the balance of M2 at the end of July was 57.3 trillion yuan (USD 8.39 trillion), up 28.42% year on year. Though the growth rate was lower than expected, it is 10.6% higher than the end of last year and 0.03% lower than the end of June. The narrowly-defined money supply (M1) has seen faster increase, which was 26.73% from last year or 1.6% from June. The balance was 19.59 trillion yuan (USD 2.87 trillion).

“The relatively faster increase of M1 indicated that the domestic enterprises became more active in their operations. It is forecasted that the growth of M1 will be faster than M2 in the future,” said Lian Ping, chief economist of Bank of Communications. If this trend is continued, it will bring stress over the increase of product price and assets price.

The Deposits Move to Stock Market

According to the data, the year-on-year growth rate of the balance of RMB deposits of the financial institutions at the end of July was 0.47% lower than last month. The previous decrease of residents’ deposits happened in October 2007.

In connection with the increasing number of new accounts in China’s yuan-denominated A-share market and the popularity of the newly-issued funds, the expert concluded that the residents’ deposits might flow to the stock market.

“Presently the ordinary people have better knowing of the investments. The government also encourages the increase of the residents’ property income. Therefore, the residents’ investment is a good matter. Furthermore, if the market can still keep this increasing trend, the increase of the investors’ property income may pull up the increase of consumption, which is good for economic recovery,” said an expert.

The restart of IPO is considered to be a reason to the decrease of residents’ deposits. An investment consultant from a security company pointed out that people have been inspired for new stocks with the restart of IPO. They may draw out their money saved in the banks and bought the new shares. Now these money stays in the first-tier market without entering into the stock market.

Apart from the attraction of the capital market for the residents’ deposits, the economist Pan Xiangdong attributed the decrease to another two factors. The first one is the residents’ stronger consumption and investment will. The second one is the decrease of residents’ income.

Pan Xiangdong said that the fixed deposits might decrease while the current deposits might increase in the future. With the betterment of the economy, the residents’ investment and consumption will become more and more frequent. Then with the worries about the inflation, the residents may choose a fund which can maintain and increase the value of their assets.

“Now, the residents may put their deposits in the stock market, property market and noble metal market. It is helpful to solve the problem of too many deposits which has been haunting China for a long time. It can also help to increase the domestic demand and to stimulate the consumption.”