(Yicai) Oct. 16 -- The shift of Chinese household savings from bank deposits into investment and wealth-management products slowed last month amid volatile capital markets, as households appeared to become more cautious and favour safer, fixed-term savings, according to analysts.

The monthly change in non-bank deposits was the weakest for September in recent years and the second-weakest monthly reading over the same period, per the latest data from the People’s Bank of China, while the difference between M2, a broad gauge of money supply that covers cash in circulation and all deposits, and M1, a narrow measure of cash in circulation and non-bank and non-government deposits, widened further.

The sharp drop in non-bank deposits and the widening M2-M1 gap both point to a cooling in the migration of deposits amid capital market volatility, said Lin Yingqi, a banking analyst at China International Capital Corporation, a leading Chinese investment bank and financial services company.

Deposits at non-banking institutions fell by CNY1.91 trillion (USD285.4 billion) from a year earlier, with the decline widening by CNY850 billion (USD127 billion) from the same month a year ago, according to the PBOC’s figures released on Oct. 14. The figure rose by CNY4.41 trillion in the nine months ended Sept. 30, CNY400 billion less than the gain in the same period last year.

M2 rose 7.2 percent from a year earlier, while M1 climbed 3.2 percent, with the gap between the two widening to 4 percentage points from 3.4 points in August.

Outstanding Chinese yuan deposits rose by CNY20.76 trillion (USD3.1 trillion) in the first nine months, down from a CNY22.71 trillion increase a year earlier, while household deposits rose by CNY9.39 trillion, compared with a CNY12.73 trillion gain a year ago. Last month, the former rose by CNY1.77 trillion and the latter by CNY2.4 trillion, about CNY440 billion and CNY560 billion, respectively, less than the growth a year ago.

The deposit trend reflects a temporary pullback in household risk appetite, and could reinforce a preference for time deposits, according to a report by analysts at brokerage Industrial Securities.

“New deposits from both households and firms are tilted toward time deposits, which could weigh on M1 performance,” the report said. Its breakdown of the deposit data showed that household and corporate demand deposits grew considerably less in September than a year earlier, while time deposits recorded much bigger increases.

Less Appetite for Risk

Household demand deposits increased by CNY696 billion less than a year ago, implying that household time deposits and other deposits increased by CNY136 billion more year on year, said Zhong Linnan, senior macroeconomic analyst at brokerage GF Securities. Client reserve funds held by payment institutions, which form part of household financial assets, also increased by CNY116.6 billion, Zhong added.

Taken together with weaker year-on-year growth in household lending and a smaller increase in newly established equity-heavy funds in September, the figures suggest that household risk appetite weakened further from August, Zhong pointed out, noting that households reduced or redeemed holdings of risky assets such as equities, while diverting more income toward debt repayment and safe assets including time deposits.

Nevertheless, China Chengxin Pengyuan Credit Rating’s research department argued in a recent report that seasonal adjustments carry limited long-term implications. In a low interest-rate environment, the long-term trend of capital flowing into non-banking vehicles such as wealth management products may remain intact, it pointed out.

In this quarter, China Chengxin Pengyuan expects policymakers to focus mainly on implementing existing measures. It said the market should close attention to the timing and multiplier effects of fiscal and financial policies designed to boost domestic demand.

The report also suggested that a meaningful cut in the reserve requirement ratio  -- or the amount of cash commercial banks must hold in reserve -- or interest rates could come in mid-to-late October or later in the next quarter.

Editor: Martin Kadiev