Chinese households are sitting atop the biggest pool of new savings in history — accumulating $2.6tn of bank deposits last year alone as strict anti-coronavirus policies crushed consumer spending.
The anticipation of a wave of pent-up demand, with consumers opening their wallets after China shifted decisively on tackling the pandemic, is underpinning hopes for a global economic recovery.
Yet the world may be misjudging China’s willingness to spend, according to some analysts, who said only about $200bn of the pool of savings might actually be unleashed this year despite Beijing’s best efforts to stoke a rapid rebound.
“There’s overestimation on the splash of Chinese consumers,” said Alicia García-Herrero, chief Asia Pacific economist at French investment bank Natixis. “The excess savings won’t be easily spent.”
Hopes are high that Chinese consumers can boost global growth. The IMF last week signalled it would upgrade its global economic forecasts on the back of China’s reopening after three years of harsh zero-Covid restrictions.
Data from the People’s Bank of China show that renminbi deposits held by households nationwide grew in 2022 by a record Rmb17.8tn ($2.6tn), a huge surge compared with growth of Rmb9.9tn in 2021.
Some of that jump is expected to amount to a one-off pot of “excess” savings that consumers will be hungry to deploy.
Economists at Morgan Stanley recently forecast that China’s economic growth would be more front-loaded this year, “mainly supported by consumption amid excess savings, improving household balance sheets . . . and recovery in the job market and income expectations”.
They point to “sizeable excess household savings” of Rmb3tn to Rmb4tn built up “from an inability to spend amid Covid restrictions and/or precautionary savings”.
Other analysts said a lot of the savings could not easily be mobilised and redeployed into spending.
Lin Yingqi, at state-run China International Capital Corp, a domestic investment bank, said about half of the Rmb8tn in apparent “excess” savings last year was in fact the result of cautious households redeploying risker investments — pulling cash out of underperforming mutual funds and other investment products and putting it in the bank.
Another Rmb1tn came from natural growth in income rather than “excess” savings, Lin said, while a further Rmb1.5tn in savings was locked up in long-term deposits.
That calculation would only leave about Rmb1.5tn free to be deployed in a potential wave of “revenge spending”.
Luo Zhiheng, chief economist at Yuekai Securities, has a similar forecast, expecting that some Rmb1.5tn of excess savings will be redeployed as consumer spending this year, equivalent to just 3 per cent of China’s annual retail sales.
“There’s still lingering uncertainty on the economic outlook, and people have a strong desire to save,” Luo said.
Some “revenge” spending by high-income groups is already visible in cities such as Beijing, but consumption overall is likely to be moderate during the long lunar new year holiday, said Ernan Cui, China consumer analyst at consultancy Gavekal Dragonomics. “The reason is largely psychological. Most people are still a little bit careful about how they consume.”
That caution is the direct result of losses incurred over the past three years as zero-Covid policies hampered income growth and undercut investment returns, while a clampdown on leverage and speculation in the property sector has hit house prices and fuelled Chinese households’ concerns over the wealth they have tied up in property.
China’s economy grew just 3 per cent in 2022, underscoring the heavy costs of the government’s longstanding zero-Covid strategy before it was abandoned in December. The growth missed Beijing’s official target of 5.5 per cent, already the lowest in decades.
In a pivot back to spur economic growth, China’s policymakers have made it a priority to boost consumption.
“The key to the economic recovery is to convert current total income to consumption and investment to the largest possible extent,” Guo Shuqing, party secretary of the PBoC, recently told the state-owned People’s Daily. Guo also pledged to use financial policies to boost the income of people affected by the pandemic.
Still, analysts said the scarring effects from the pandemic could remain for years if consumers continued to maintain a cash buffer of precautionary savings in the face of prolonged economic uncertainty.
“China needs a strong force to drag the economy out from the vicious circle of weak demand and low expectation of income growth,” said Zhang Jun, dean of the School of Economics at Fudan University. “If that can’t [come from] exports in 2023, then fiscal stimulus such as strong government spending should step up and be that force.”
Until consumer confidence can be restored, many Chinese households will be reluctant to dip into their savings.
Mark Chen, a new father in his 30s working in Shenzhen, said many of his fellow migrant workers had been given a full month of time off for the typically week-long lunar new year period — without pay.
“It’s universal that many of us now only have freedom but no money, let alone the ability to spend on consumer goods,” Chen said. “Even one person can take months to recover from Covid-19; the time it takes for a country to recover should be calculated in years.”
Additional reporting by Edward White and Kai Waluszewski