(Yicai) June 15 -- Chinese residents’ deposits fell for a second consecutive month in May, a rare occurrence over the past decade, while deposits held by non-bank financial institutions continued to grow, signaling a potential revival in the circulation of funds across the economy.

Resident deposits declined by CNY110 billion (USD15.3 billion) in May after falling CNY1.94 trillion in April, bringing the combined decrease over the two months to CNY2.05 trillion. Over the same period, deposits at non-bank financial institutions increased by CNY3.61 trillion, according to the latest data from the People’s Bank of China.

The shift has attracted attention because it suggests funds may be moving from households into enterprises, wealth management products and other financial assets, a trend some analysts say could help improve China’s domestic economic cycle.

Despite weak credit demand, monetary indicators showed signs of improvement. Broad money supply (M2) rose 8.6 percent from a year earlier in May, unchanged from April, while narrow money supply (M1) increased 5.5 percent, up 0.5 percentage point from the previous month.

Regarding May’s subdued lending data, Ming Ming, chief economist at Citic Securities, said May is typically not a peak period for credit issuance. New lending was mainly supported by short-term loans and bill financing, while household consumer loans, household medium- and long-term loans, and corporate medium- and long-term loans remained weak.

The data indicate that households remain reluctant to increase leverage and companies continue to show limited demand for capital expenditure, Ming said.

Funds Flow From Deposits Into Financial Assets

Analysts noted that the narrowing “scissors gap” between M2 and M1 growth rates is generally viewed as a leading indicator of improving economic vitality, suggesting that idle funds are beginning to circulate more actively.

The ongoing trend of “deposit migration” is contributing to that process, according to Ming. Funds are shifting from time deposits into wealth management products, equity investments and some demand deposit accounts, helping optimize deposit structures and improve corporate operating cash flows, which in turn supports faster M1 growth.

In a recent report, China Galaxy Securities said the movement of resident deposits toward enterprises and non-bank institutions indicates that capital circulation is restarting. Since the second quarter of 2025, the growth rate of resident deposits has slowed from 10.7 percent to about 7.5 percent, while the gap between resident deposit growth and M2 growth has continued to narrow and has remained negative for five consecutive months.

Will Deposit Migration Reach the Stock Market?

The scale of maturing deposits remains a key indicator for assessing the sustainability of the trend. However, market participants remain divided over how much of those funds will remain within the banking system and how much may eventually flow into the stock market.

According to estimates by China International Capital Corporation, about CNY75 trillion (USD10.4 trillion) of household fixed-term deposits will mature this year, including roughly CNY67 trillion with maturities of one year or longer.

Several industry insiders said lower interest rates may encourage households to diversify their asset allocations, but most funds are still likely to remain within the banking system in the form of deposits.

Liu Yu, chief economist at Industrial Securities, said evidence from the first quarter suggests that deposit migration is occurring. However, while households and companies continue to seek returns through long-term deposits, their aversion to risk remains stronger.

As a result, many holders of maturing high-yield deposits are choosing to renew them at lower interest rates rather than shift funds into riskier assets, Liu said.

For capital markets, the key question is whether deposit migration will translate into increased stock market participation. Data released by the Shanghai Stock Exchange showed that almost 2.8 million new A-share trading accounts were opened in May, up 11 percent from April and 78 percent from a year earlier.

By the end of May, a total of 17.3 million new A-share accounts had been opened this year, representing nearly 60 percent growth from the same period last year.

Lin Yingqi, a banking analyst at CICC, said annual deposit flows from households and non-financial enterprises into non-bank institutions typically range from CNY5 trillion to CNY10 trillion. Based on trends through the end of April, this year’s total could exceed CNY10 trillion, surpassing last year’s CNY7 trillion.

Editor: Emmi Laine