The considerable increase in bank deposits has drawn much attention to so-called "excess savings."

According to the People's Bank of China (PBC), the central bank, renminbi deposits registered a significant rise in 2022 over the previous year. Household deposits contributed most, with its increase last year 7.94 trillion yuan ($1.14 trillion) more than that in 2021. Outstanding renminbi deposits totaled 258.5 trillion yuan ($37.28 trillion) by the end of 2022, up 11.3 percent year on year.

Excess savings are usually defined as money on top of what consumers are on pace to accumulate, though how they are calculated may vary. The Minsheng Securities Research Institute estimated China's household excess savings in 2022 at 7.4 trillion yuan ($1.07 trillion).

Transforming the extra cash into spending power that will drive growth has become a major topic for discussion given economic recovery has accelerated following adjusted COVID-19 management. Experts believe that as consumer market picks up, individuals will begin spending the precautionary savings they have accumulated.

"But we should not place too much faith in this trend," Shao Yu, chief economist at Orient Securities Co. Ltd., said. "Whether excess savings will be effectively channeled into the consumption market depends on consumer confidence in the future of the economy and the reduction of lingering cautiousness caused by the pandemic. Once the prospect of rising income and return on investment is clear, consumers will loosen their purse strings," Shao said.

Prone to saving 

As early as in 2017, figures showed household deposits were increasing. Since 2019, the proportion of total renminbi deposits made up by household deposits has increased remarkably.

According to the PBC figures, household deposits increased by 9.7 trillion yuan ($1.41 trillion), 11.3 trillion yuan ($1.64 trillion) and 9.9 trillion yuan ($1.44 trillion) in 2019, 2020 and 2021, respectively.

However, in the present era of credit, deposits and savings are not the same thing. Ming Ming, chief economist at CITIC Securities Co. Ltd., said the rise in savings does not necessarily correspond to the rise in deposits because low-risk financial products can replace bank deposits as tools for people to store their wealth.

Ming said due to the drastic fluctuations in the equity market, increasing uncertainties of asset values and incomes, as well as the sluggish real estate industry, risk-averse people are transferring or diverting wealth from these forms of investment into bank deposits. These savings are known as precautionary savings.

A survey conducted by the PBC in the fourth quarter of 2022 showed that, during that period, 61.8 percent of urban and rural residents preferred to "save more," which was 3.7 percentage points higher than in the previous quarter. At the same time, 15.5 percent of the respondents preferred to "invest more," which was 3.7 percentage points lower than in the previous quarter.

Zhao Wei, chief economist at Sinolink Securities Co. Ltd., said compared with the same period of 2019, nearly 80 percent of the newly increased deposits in the first 11 months of 2022 may have been a result of the decline in real estate purchases. Also, the pandemic took a hit on people's incomes and expectations, making them more likely to save.

According to figures from the Ministry of Culture and Tourism, 308 million domestic sightseeing trips were made during the Spring Festival holiday week this year from January 21 to 27, up 23.18 percent year on year and 88.6 percent of pre-pandemic 2019 levels. Domestic tourism revenue during the holiday reached 375.84 billion yuan ($54.55 billion), a year-on-year increase of 38

percent and 73.1 percent of the figure in the same period of 2019.

"The Spring Festival holiday data suggests consumption is set to recover in 2023," Ming said.

Whether post-pandemic "revenge spending," or money that is spent after a period of belt tightening or inability to spend, will have a significant role in channeling excess savings out of consumers' bank accounts has also been a focus of public discussion. Some economists were not optimistic the impact would be large.

Zhao said he believes that top priority should be given to improving consumer confidence and reducing uncertainties. To be specific, multiple measures should be taken to increase incomes, improve the social safety net, and address concerns in public services such as elderly care, health and education. It is also important to create new forms of consumption and encourage businesses to better satisfy consumers' needs through innovating their products and services.

Promising prospects 

A multifaceted approach to boost consumption has become an important aspect of managing the economy.

In late December 2022, the China Banking and Insurance Regulatory Commission urged banking institutions to increase consumer credit and provide sound financial services to support senior care, education, healthcare, culture, sports, hospitality and tourism sectors. The Central Economic Work Conference that month, which set the tone for the government's economic policies in 2023, also stressed giving priority to restoring and expanding consumption.

Shao is optimistic about the prospects of excess savings unleashing a spending boom. According to him, in the future, the government, in addition to issuing new policies to boost consumption, may also provide incentives, such as vouchers for the purchase of home appliances and automobiles.

Increased spending can also help businesses increase investment and create more jobs, forming a virtuous cycle of consumption, investment and more consumption, which will be effective in advancing the recovery of consumer market, Shao said.

(Print Edition Title: Excess Woes)

The author is a reporter with China Report magazine 

Copyedited by G.P. Wilson 

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