Chinese favor bourses, bullion over
banks By Olivia Chung
HONG KONG –Chinese people are known for
being keen on saving money and traditionally they
have kept the bulk of their savings in banks to
earn even petty interest.
But as China's
increasingly capitalist-style economy has provided
more opportunities they have turned from
low-interest bank accounts to playing the stock
market, investing in real estate and high-yield
funds.
A major indicator of the trend is
the declining rate of China's
household savings, according
to the latest statistics from the country's
central bank, the People's Bank of China (PBoC)
which reported that household savings were up by
only 762.1 billion yuan (US$98.3 billion) in the
first nine months of this year, compared with 1.73
trillion yuan during the same period last year.
Zhu Haibin, an analyst at Essence
Securities, said concerns of rising inflation have
also spurred people to reduce bank savings while
increasing other investments.
According to
a quarterly PBoC bank survey released last month,
44.3% of households believed "stocks and
investment funds" were the most cost-effective way
of saving and increasing the value their savings,
compared with 25.3% which favored bank deposits.
By comparison, at the beginning of this year, most
respondents considered bank deposits the most
cost-effective way of increasing the value of
their savings, the quarterly survey said.
The survey also showed a record high of
35.6% of the 20,000 respondents in 50 cities in
the third quarter saying that investment funds and
stocks were their main assets, while 50.4% said
bank deposits were. The latter figure was down
from 70.4% at the beginning of last year.
Yu Chuheng, on the administrative staff of
an art institute in Guangzhou, is typical of the
trend. He lost half of his 65,000 yuan investment
in stocks and left the bear market in 2003 when he
believed it had bottomed out. Yu re-entered the
stock market at the end of 2005, went to a
brokerage house and put 20,000 yuan into an
investment fund.
"I still put 10% of my
savings into my bank account and 90% into my
investment account," Yu said. "I trade in shares
with the money in my investment account now. I
used to put aside 30% of the money in my
investment account for a rainy day."
Yu
said he is considering buying more investment
funds rather than equities due to higher rates of
return. "The return for what I bought has more
than doubled since 2005, but unfortunately I sold
it when the return rate reached only 20% a few
months after I bought it," he said. "The product's
returns are better than the returns of the stocks
I have bought, not to mention the deposit rate. I
believe the banks or brokerage houses with wealth
management teams have a rich knowledge of
investing and important information about listed
companies in advance."
For higher
liquidity, more people are investing their money
in current accounts rather than fixed-term
accounts, the PBoc report said. China's
outstanding commercial bank deposits reached 17.3
trillion yuan at the end of June 2007, but that
was 593.8 billion yuan less than a year ago. In
total, households' current deposits increased 40.4
billion yuan year-on-year while their fixed-term
deposit declined 634.3 billion yuan at the end of
June.
Hu Weitao, chief investment officer
of Valuefinder Investment Management Co in
Shenzhen, attributed the change to to rising
inflation and negative real interest rates.
The one-year key deposit rate was
increased to 3.87% after the central bank on
September 15 raised interest rates for the fifth
time since March, while China's consumer price
index (CPI), the main gauge of inflation, jumped
6.5% in August, mainly due to food price
increases. It was the highest monthly rise in 11
years and kept deposit rates in negative
territory.
Yi Gang, assistant governor of
the PBOC, said on September 17 that inflation
could grow 4.5%, higher than Beijing's full-year
target of 3%. The consumer price index rose 3.9%
in the first eight months of this year.
Hu
believed if the CPI remains in the range of 6% to
6.5%, which is still higher than the one-year
deposit rate, it will prompt more households to
put their money in yuan-denominated assets such as
stocks and the real estate market, which the
Chinese government has been unsuccessfully trying
to rein in.
The average price of property
in 70 large and medium-sized cities on the
mainland jumped 8.2% year-on-year in August
following a 7.5% gain in July. Housing prices in
the Guangzhou provincial city of Shenzhen went up
20.8% and 12% in Beijing in August from a year
earlier.
In the first six months of the
year, investors poured 988.7 billion yuan into
property development, up 28.5% from the same
period last year.
According to a survey
conducted by financial services provider ING
Asia-Pacific, 70% of mainland respondents expect
the stock market to continue rising in the next
three months, due to high liquidity and the return
of heavyweight state-owned enterprises from
overseas stock markets to the domestic A-share
market.
Older than the stock market and
bank accounts, gold has traditionally been a
favored investment for Chinese both for its
connotations of nobility and wealth and its value.
Investment-grade gold bullion is popular and
Chinese banks also offer paper gold trading, where
investors can't hold real bullion but bet on gold
prices.
According to the Shanghai Daily in
September, Chinese mainland gold demand rose 32%
to 75.9 tons in the three months ending in June.
Gold jewelry demand rose 30% in the period to 70.6
tons, while the demand for investment-grade gold
rose 76% to 5.3 tons on China's mainland.
An administrative staffer in a Beijing
trading company surnamed Fan said rising gold
prices spurred her to buy 20 ounces of gold
immediately after China Merchant Bank started
selling gold bars to individuals at the end of
2005.
"I still remember that international
gold prices reached more than US$400 per ounce at
that time, which is equal to 120 yuan per gram.
Half a year later, the prices jumped by about 40%,
hitting $730 per ounce," Fan said. "Regretfully, I
sold the gold bar when the prices reached only 170
yuan per gram, increasing by more than 40%."
Because paper gold is more convenient, Fan
spent 100,000 yuan betting on the price when it
was 156 yuan per gram at the end of last year. She
expected to profit from a long-term investment,
and the price of the paper gold has jumped to 178
yuan per gram recently.
"I learned a long
time ago that gold is deemed as a hedge against
inflation, so now due to soaring inflation, it's a
good time to buy the precious metal," the
financial management graduate said.
Olivia Chung is a senior Asia
Times Online reporter.
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Asia Times Online Ltd. All rights reserved. Please
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