Woeful return on 44-year-old deposit has social media users asking: What is the yuan really worth?

When a state bank revealed this week that the value of a long-forgotten 1,200 yuan deposit certificate from 44 years ago had grown to just 2,684 yuan, it caused a sensation on social media.

Internet users swung into action reviewing the history of price changes over four decades in China. Comparisons were made between what you could buy with 1,200 yuan (equivalent to about US$600 at the time) in 1973 versus what 2,684 yuan (US$400 at current rates) gets you in today’s China.

The money was deposited into a savings account in March 1973 at a Xiamen branch of the People’s Bank of China, the country’s only bank at the time, the local Strait Herald newspaper reported on Wednesday.

The certificate was apparently forgotten about and only recently rediscovered. But when its owner, a woman surnamed Chen, went to cash it in – expecting a windfall – at a state bank in the coastal city in Fujian, the pitiful amount it returned in interest and principal came as a shock.

The tale, which was widely circulated online, is a window on how inflation has changed the value of money in China.

In 1973, China was still in the throes of the turbulent political movement of the Cultural Revolution and under a command economy. Urban households needed coupons as well as cash to buy many things, from pork to clothing, according to Ye Cuiying, a 72-year-old retiree.

Ye said 1,200 yuan was a huge amount at that time – she earned just 40 yuan a month as a doctor working in a hospital in the southwestern city of Chengdu, the capital of Sichuan.

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“Pork at that time cost 1.50 yuan per kilogram, sugar was 1.40 yuan per kilogram, and it cost 0.10 yuan for an egg,” Ye told the South China Morning Post. “It only cost 0.20 yuan to see a movie. But we barely had any savings at the end of each month.”

In Chengdu today, by contrast, pork sells for about 18 yuan per kilogram, sugar costs about 8 yuan per kilogram, and eggs are about 0.50 yuan each. It costs about 40 yuan to see a movie.

A doctor with two years’ experience could earn 1,200 yuan a year in 1973.

But in 2017, 2,584 yuan is equivalent to just one third of the average Chengdu monthly wage of 7,280 yuan.

Figures such as these are the reason why many social media users reacting to the story concluded that saving money in a bank was a poor wealth management strategy in China.

“The bank’s calculation fails to take inflation into account,” one online commenter said. “It’s not fair and it has led to a huge depreciation of wealth.”

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A comparison of prices over the decades shows that China’s official inflation figures have been seriously under-reported. Price liberalisation began in the 1980s in China, when the government started to retreat from pricing, creating a bumpy inflation trajectory.

The official consumer price index peaked in 1994 at an annual rate of 24.1 per cent. But it has been running in the single digits since 1996 – and below 3 per cent since 2012.

The CPI rose 2.1 per cent in 2016. In August, it rose 1.8 per cent, the second highest monthly growth this year.

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“It’s a global phenomenon that the consumer price index under-reports the real inflation picture, but the situation is particularly serious in China,” said Yi Xianrong, a Qingdao University economics professor who has worked at the Chinese Academy of Social Sciences.

Yi has been one of the most vocal critics of China’s consumer price index, arguing that it underestimates real inflation.

“The CPI stays low, which keeps the interest rate at a low level, pushing up asset prices and fuelling an asset bubble. But the impact of the asset bubble on driving up prices hasn’t been reflected in the CPI,” Yi said.

Yu Miaojie, deputy director of the National School of Development at Peking University, said price fluctuations in big cities did not fully represent changes in the national CPI reading.

“CPI measures a basket of goods and nationwide price changes,” Yu said, adding that the central bank may take asset prices into account to improve inflation policy.

The story of the Xiamen deposit certificate also feeds into a growing trend among Chinese households to favour borrowing over saving.

According to the central bank, China’s household bank savings rose 259 billion yuan in August to 63.22 trillion yuan.

Household bank loans went up by 663.5 billion yuan the same month, amounting to 38.37 trillion yuan at the end of August.

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Ye, the retiree in Chengdu, said she remembered when money was worth a lot more than it is today.

“In the 1970s, my husband said I wouldn’t need to work if his salary rose to 100 yuan a month,” Ye said. “In the 1980s, he said I could quit my job if his wage went up to 150 yuan a month. But after that he never made these promises – and I never quit my job. Food and other everyday items are much more expensive now than they were before,” she said.

“Prices are rising too fast, but the government always says they are stable. How is that possible?”