BEIJING/SINGAPORE — After Chinese banks reduced deposit rates last week, Miro Chen launched a social media poll: “When interest rates fall, do you save or spend?”
More than 80 percent of some 5,000 responses chose saving, underlining the challenge for policymakers seeking to shore up demand and economic growth.
“The result is one-sided, indicating people are very worried,” said the 37-year-old, who works for an internet company in southern China. “I am not sure how long my company can survive,” he added, explaining why he also saves.
China’s central bank eased monetary policy last week to limit damage from the trade war with Washington. On Friday, it lowered the ceiling for deposit rates to offset margin pressure on banks and prompt savers to spend or invest more.
But successive cuts to deposit rates in recent years have failed to curb explosive growth in Chinese household savings, intensifying concerns over the side-effects that lower returns have on the country’s consumers, who tend to build their own safety net.
At the end of March, total household deposits surpassed 160 trillion yuan ($22.30 trillion), up 10.3 percent from a year before, and equivalent to 118 percent of last year’s gross domestic product (GDP), official data show. Retail sales, by comparison, rose 4.6 percent year-on-year in the first quarter.
Minxiong Liao, senior economist at GlobalData.TS Lombard APAC, says lower interest rates “likely reduce income growth” for China’s population.
“People, especially those born in the 1980s, may need to save more rather than spend in the coming decade to secure retirement cashflow, as low interest rates are likely to persist.”
Chinese households have been saving more due to worries over job security in a stuttering economy facing deflationary pressures, as well as wealth concerns caused by a prolonged property crisis.
Liao and other economists say the best policies to increase consumption in China would be bolstering its pension system and other social benefits to curb households’ savings needs.
Since losing his marketing job a year ago, 30-year-old Lawrence Pan, now a freelancer, no longer pays his social insurance contributions, although he could if he chose to.
