Chinese language - Household deposits post biggest monthly drop

BIZCHINA / Weekly Roundup

Household deposits post biggest monthly drop

By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-06-13 15:04

China's household deposits recorded the largest drop in a month in May,
official statistics showed Tuesday, as people divert bank savings to the
stock market.

Last month, Chinese families' deposits decreased 278.4 billion yuan, the
central bank said Tuesday, breaking the record of monthly drop set just
in April when household deposits went down 167.4 billion yuan.

Meanwhile, the renminbi deposit balance stood at 36.03 trillion yuan, a
year-on-year increase of 14.63 percent, the lowest growth rate since
April, 2002.

Analysts attribute the decline in deposits to the magnetic effect of the
country's stock market which has soared more than 50 percent so far this
year even after a major correction in the last two weeks caused by the
stamp tax hike.

"The rapid decrease in deposits indicates citizens' enthusiasm in stock
investment is still high," said Guo Tianyong of Central University of
Finance and Economics. He expects a slowdown in the decrease in June due
to the recent slumps in the stock market.

Shenyin Wanguo Securities analyst Li Huiyong cited two reasons for the
drop in deposits. "The return from deposits is too low and the money
continues to flow to stocks and funds, or other higher-yield instruments."

Increased consumption during the May Day holiday is also a factor, Li
added.

The benchmark one-year deposits currently carry an interest rate of 3.06
percent, below May's inflation rate of 3.4 percent as measured by
consumer price index (CPI), the highest in more than two years. That
makes the real interest rate negative, raising the pressure for an
interest rate hike.

Interest Rates Hikes

Interest rates increases are needed to keep bank deposit rates positive
in real terms, said Zhou Wangjun, a deputy director in the price
department of the National Development Reform Commission.

The possibility for an interest rates hike is increasing, said Li Huiyong
of Shenyin Wanguo, citing the high-flying CPI in the last few months. CPI
rose 3.3 percent in March before falling to three percent in April, equal
to central bank's target for this year.

Last week, central bank governor Zhou Xiaochuan said he was "closely"
monitoring the rising food costs and will study May's CPI data before any
interest-rate change.

The central bank has raised interest rates twice this year, with the
latest coming on May 19.

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