Chinese Consumers Turn To Bank Deposits For Financial Security

More Chinese consumers are choosing to deposit their money into traditional banks as they turn away from higher-yielding assets in favor of financial security. According to Bloomberg, China’s household deposits increased in July at the fastest annual rate in a year, and analysts say those numbers could go even higher due to factors such as the nation’s falling stock market, hundreds of peer-to-peer (P2P) lending platforms closing down and many companies defaulting on their debt.

“People around me are all asking the same question: Where is the safe place to put our hard-earned savings?’’ said Anna Teng, a marketing manager in Shanghai. Teng has been moving her assets into deposits after losing about 20 percent on her equity investments in just a few months and falling victim to a fraudulent P2P lending platform.

Teng added, “The time that you could easily earn 10 percent without worrying about risk is gone. What I’m asking for now is to preserve the principal.’’

Though there is worry that the move out of higher-yielding assets could bring turbulence to local financial markets if done too quickly, the rise in bank deposits is also a positive sign for the government. Investors now “understand that a very high yield comes with risk,’’ said Zheng Yuan, deputy head of private banking at ICBC (Asia) Ltd.

Data from the People’s Bank of China showed that Chinese households increased their allocations to deposits by 8.6 percent in the year through July. The nation’s benchmark deposit rate is currently at 1.5 percent, though rates can vary anywhere from 2.5 percent to 4.2 percent, depending on the bank.

Traditional financial institutions are also trying to lure savers with the offer of “structured deposits’’ and derivative-linked products that offer higher yields (up to a pre-determined cap), but only if savers bet correctly on the direction of various currencies, commodities or stock indexes. Cash in structured deposits rose more than 50 percent in the year through July to the equivalent of $1.4 trillion.

“A lot of the ‘flight to safety’ money will go back to the banks or other traditional financial institutions in the form of deposits or low-risk money-market funds,’’ said Wang Yifeng, a Beijing-based researcher at the China Minsheng Banking Corp.