(Yicai) Sept. 15 -- China’s new household deposits contracted in July and August from the year before, while deposits from non-bank financial institutions surged, in a sign that people have been moving money out of their savings and into the stock market for the past two months amid record-low interest rates, according to the latest data.

China’s newly added household deposits slumped by 84.5 percent last month from a year ago to CNY110 billion (USD 15.4 billion), according to figures released by the People’s Bank of China on Sept. 12. While new deposits by non-bank financial institutions, which refers to securities firms, fund companies and insurance firms, surged 84.6 percent to CNY1.2 trillion (USD168.5 billion).

The two types of deposits are connected as when households invest in stocks or funds, they must first transfer money from their personal bank accounts to accounts held by brokerages or fund companies. Therefore, when household deposits fall and non-bank deposits rise at the same time, it usually signals a stronger appetite for investing among savers.

In July, household deposits plunged by CNY1.1 trillion (USD154.5 billion), three-and-a-half times the drop the same period last year, while non-bank deposits tripled year on year to CNY2.1 trillion, hitting the highest level for the period since 2015.

The stock market has corroborated this trend. There has been a bull stock market since May. The Shanghai Stock Exchange Composite Index climbed 3.7 percent in July and another 8 percent in August, hitting its highest level since August 2015 on Sept. 12 at 3,892.74.

Things have improved on the macroeconomic level since July, Wang Jian, chief financial analyst at Guosen Securities, told Yicai. Regulators are signaling a push against ‘involution-style competition,’ which refers to excessive and self-defeating rivalry, and this has lifted expectations for long-term fundamentals, driving the stock market upward.

With bond yields at low levels, fixed-income products have lost their appeal, encouraging capital to flow into the equity market, Wang added.

The central bank’s loose monetary policy has driven bank deposit rates to record lows. In May, major state-owned banks trimmed their deposit rates for the seventh time since September 2022. The one-year deposit rate tumbled 15 basis points to 0.95 percent, dropping below 1 percent for the first time ever.

Despite this, credit growth has been weak. Yuan-denominated loans increased by CNY13.5 trillion (USD1.8 trillion) in the first eight months, CNY970 billion (USD136.2 billion) less than the same period last year. This shows that companies and residents remain cautious, according to the PBOC.

Editors: Dou Shicong, Kim Taylor