(Yicai) June 18 -- After China’s major banks cut deposit rates to the lowest on record last month, the signs are that investors are turning to relatively low‑risk cash management and wealth management products offered by lenders.

When one saver’s five‑year fixed‑term deposit of CNY1.5 million (USD208,770) matured at the start of this year, she gave up on the idea of redepositing the funds, she told Yicai. “The yield had been as much as 4.8 percent per annum, but today’s rates are barely above 2 percent,” she said. “The gap is simply too large.”

Instead, she invested the funds in more than a dozen low-risk cash management products.

As more former depositors shift funds into wealth management products, new user groups have sprung up on major social media platforms. Hot topics in these groups include investment strategies and operational tips, and influential bloggers in this area have begun to appear.

Lenders have slashed deposit rates multiple times since 2022, said Qu Ying, a researcher at financial research institute PY Standard. Three-year fixed deposit rates have generally dropped to below 2 percent, failing even to meet the modest need among households and businesses for “capital preservation plus modest returns,” Qu added.

China’s largest state‑owned banks cut deposit rates again on May 20, pushing the one‑year rate below 1 percent for the first time ever, after the People’s Bank of China lowered the one-year loan prime rate as part of a coordinated monetary easing effort to support the economy and stabilize bank lending margins.

The four commercial lenders reduced the one-year deposit rate to 0.95 percent from 1.1 percent and the two-year rate to 1.05 percent from 1.2 percent. The three- and five-year rates were dropped by 25 basis points each to 1.25 percent and 1.3 percent, respectively.

When low rates have become the norm, the appeal of bank deposit products has markedly waned, Qu noted, adding that it is only natural for funds to flow into alternative assets that offer controlled risk and strong liquidity.

Qu pointed out that money market funds and cash‑type wealth management products can typically meet liquidity needs and deliver annualized returns slightly above deposit rates. For savers as well as micro and small businesses with high liquidity needs and low risk appetite, these products make for an effective substitute to bank deposits, Qu added.

But a substantial concentration of funds into low‑risk products could expose the overall market to risks such as duration mismatches and excessive asset concentration, Qu cautioned. “Regulators may need to tighten prudential oversight of money market funds and cash management products to prevent unhealthy competition between these products and banks’ other businesses,” Qu said.

Editor: Martin Kadiev