Eliza Wong
Key Market Developments
China’s financial markets are witnessing a significant structural shift as household savings increasingly flow toward capital markets rather than traditional bank deposits. The latest People’s Bank of China (中国人民银行) data reveals this deposit migration trend has continued for two consecutive months, creating both opportunities and challenges for investors navigating Chinese equities.
Executive Summary
– Household deposits declined by 600 billion yuan year-over-year in August while non-bank financial institution deposits increased by 1.18 trillion yuan – The M1-M2 spread narrowed to -2.8%, the smallest gap since June 2021, indicating improved monetary circulation efficiency – Multiple analysts confirm this deposit migration pattern reflects changing consumer investment preferences amid low deposit rates – The trend coincides with improved equity market performance and changing regulatory environment for Chinese stocks – Market participants should monitor this development for potential sustained capital market inflows
Understanding the Deposit Migration Phenomenon
Recent financial data from the People’s Bank of China reveals a notable pattern that market participants are calling ‘deposit migration.’ For the second consecutive month, household deposits have shown below-seasonal growth while deposits in non-bank financial institutions have increased substantially.
The Numbers Behind the Trend
In August, household deposits increased by only 110 billion yuan, representing a year-over-year decrease of 600 billion yuan. Meanwhile, non-bank financial institution deposits grew by 1.18 trillion yuan, maintaining strong year-over-year growth despite a month-over-month decline. This inverse relationship between household and non-bank deposits suggests capital is moving from traditional savings vehicles toward investment products. The narrowing M1-M2 spread, which reached -2.8% in August (the smallest gap since June 2021), further confirms improved money circulation efficiency. According to Li Chao (李超), chief economist at Zhejiang Securities (浙商证券), ‘The narrowing M1-M2 spread reflects enhanced monetary activity, with households and businesses converting term deposits to demand deposits for consumption or investment purposes.’
Drivers Behind the Deposit Migration Trend
Multiple factors are contributing to this ongoing deposit migration pattern, with market analysts identifying several key catalysts.
Interest Rate Environment and Market Performance
Zhang Jiqiang (张继强), chief macro analyst at Huatai Securities (华泰证券), identifies four primary drivers: declining deposit rates creating reallocation effects, strong August equity market performance boosting transaction demand, low base effects from last year’s deposit regulations, and factors including foreign exchange settlement, debt resolution, fiscal expenditures, and shortened corporate payment cycles. The deposit migration trend appears strongly correlated with equity market performance. July data showed non-bank deposits increasing by 2.14 trillion yuan, the highest level for that month since records began in 2015, while the Shanghai Composite Index gained 3.74% with trading volume surging over 40% month-over-month.
Market Implications and Analyst Perspectives
The ongoing deposit migration has significant implications for Chinese equity markets and broader financial stability.
Interpreting the Signals
Zhao Wei (赵伟), chief economist at Shenwan Hongyuan Securities (申万宏源证券), notes that ‘the most obvious change in August financial data is deposit migration. Household deposits have been below seasonal growth for two consecutive months for the first time in 2025, and the seesaw relationship between household and non-bank deposits closely correlates with capital market performance.’ Guo Lei (郭磊), chief economist at GF Securities (广发证券), adds that ‘the deposit structure shows characteristics similar to July, with household deposits increasing significantly less and non-bank deposits increasing significantly more, indicating the deposit migration trend continues to strengthen.’ However, some analysts urge caution in interpretation. Guan Tao (管涛), global chief economist at Bank of China Securities (中银证券), suggests that ‘using non-bank deposit changes to explain stock market fluctuations may be more reliable than using household deposits. Non-bank deposits come from both individual residents and institutions, and their increase represents a financial disintermediation phenomenon belonging to broad deposit migration, but doesn’t necessarily directly reflect decreases in household deposits.’
Future Outlook and Investment Considerations
Most analysts believe the deposit migration trend toward equity markets will likely continue, driven by multiple structural factors.
Sustained Trend Probability
Wang Jian (王剑), chief financial industry analyst at Guosen Securities (国信证券), notes that ‘since July, positive changes in macroeconomic narrative and signals against ‘internal competition’ have improved long-term economic fundamental expectations, driving continued capital market improvement.’ He adds that with bond market rates at low levels unlikely to decline further, fixed-income product yields have become less attractive, directing funds toward equity markets. The deposit migration trend occurs alongside other significant household financial behaviors. The People’s Bank of China’s Q2 2025 Urban Depositor Survey Report shows 63.8% of residents prefer ‘more saving’ (up 1.5 percentage points quarterly), while only 23.3% prefer ‘more consumption’ and 12.9% prefer ‘more investment’ (down 0.5 and 1.1 percentage points respectively).
Parallel Trends: High Savings and Deleveraging
Despite deposit migration toward investments, Chinese households continue demonstrating conservative financial behavior. In the first eight months of 2025, household RMB loans increased by only 711 billion yuan, a significant year-over-year decrease of 729 billion yuan. The spread between household deposits and loans continues widening, reaching 9.06 trillion yuan in August. The Chinese Academy of Social Sciences Q2 2025 Macro Leverage Ratio Report shows household sector leverage ratio declining by 0.4 percentage points to 61.1%, while the overall macro leverage ratio increased by 1.9 percentage points to 300.4%. This household deleveraging trend continues despite government efforts to stimulate consumption through multiple measures, including consumer vouchers, discounted loan programs, and new lending facilities targeting service consumption and elderly care. Wen Bin (温彬), chief economist at China Minsheng Bank (民生银行), notes that ‘as various policies gradually take effect, related areas may see further release of存量 credit demand, but the stability and sustainability of retail loan growth still depends on substantive improvement in long-cycle variables like employment and income.’
Strategic Implications for Market Participants
The ongoing deposit migration trend presents both opportunities and challenges for investors in Chinese markets. The movement of household savings toward capital markets could provide sustained support for equity valuations, particularly if the trend continues. However, investors should monitor whether this represents a fundamental shift in household asset allocation or a temporary response to current market conditions. The parallel trends of deposit migration toward investments and household deleveraging suggest Chinese consumers remain cautious despite moving some savings toward higher-yielding assets. This creates a complex environment where strong capital market performance could continue attracting household savings while broader consumption patterns remain restrained. For international investors, understanding these dynamics is crucial for positioning in Chinese equities. The deposit migration trend may support continued market performance, particularly in sectors benefiting from increased retail participation. However, investors should also monitor policy responses and whether household behavior shifts if market conditions change. Monitor monthly financial data from the People’s Bank of China for continuation of these trends, particularly the relationship between household and non-bank deposits. Watch for policy developments that might affect deposit rates or capital market accessibility. Consider how sustained deposit migration might affect different sectors within Chinese equities, particularly those with high retail investor participation.
