Chinese put faith in bank savings

PUBLISHED : Friday, 22 December, 1995, 12:00am
UPDATED : Friday, 22 December, 1995, 12:00am

MAINLAND Chinese say they would rather put their money in the bank than buy stocks or consumer durables if interest rates remain unchanged and inflation picks up, according to a central bank survey.

The People's Bank of China survey - carried out in 34 major and medium-sized cities at the end of last month - showed that most Chinese consider savings the best way to keep up with high inflation.

About 63 per cent of the Chinese surveyed said they would set aside money in the bank if interest rates stayed the same. The figure goes down to about 43 per cent if inflation rises.

A report in the Shanghai Securities News did not reveal the size of the survey or the amount held in savings accounts.

Mainland press reports said by the end of September, savings reached about three trillion yuan (about HK$2.79 trillion), 40 per cent higher than at the beginning of the year.

Analysts said the lack of investment avenues and the low returns from stock investments made savings an attractive option for most Chinese despite double-digit inflation.

Interest rates on savings are high, but negative for short-term deposits if inflation is taken into account.

Banks generally pay 10.98 per cent annual interest on one-year deposits, 11.7 per cent for two-year deposits, 12.24 for three-year deposits and 13.86 per cent for five-year deposits.

The consumer price index (CPI) rose 11.2 per cent last month, bringing the average for the first 11 months to 17.7 per cent.

The retail price index (RPI) rose 9.2 per cent in November while the 11-month average was 15.4 per cent.

The official CPI target was 18 per cent and RPI target, 15 per cent for the year.

Analysts said savings remained high because of a monthly inflation-linked subsidy paid to deposits of three years and above.

Except for January's rate, the subsidy has consistently been more than 10 per cent.

In other words, savings of three years and above received interest rates of considerably more than 20 per cent.

'If you compare what you get from investment in stocks and shares, interest payments are definitely higher and more attractive,' an economist said.

While high savings are regarded as a virtue, they have become a burden to the state banks, which have to fork out high interest payments while earning low interest for loans.

'The burden is extremely heavy for banks, which are unable to even collect back the loans, let alone the interest payments, from many money-losing state enterprises,' the economist said.

He said that if measures were not taken to open up more attractive investment opportunities, the growing level of savings would soon reach crisis point for the state banks.