Eliza Wong
Key Market Insights
– Household deposits declined for second consecutive month in August, dropping RMB 600 billion year-over-year
– Non-bank institutional deposits surged RMB 1.18 trillion, continuing July’s migration trend
– M1-M2 spread narrowed to -2.8%, the lowest since June 2021, indicating improved monetary circulation
– Deposit migration appears correlated with recent equity market performance and policy developments
– Structural shifts suggest changing household asset allocation preferences amid low deposit rates
Deposit Migration Patterns Intensify
China’s financial system is witnessing a notable shift in deposit patterns that has captured market attention. The People’s Bank of China (中国人民银行) August financial data reveals households are moving funds from traditional savings vehicles toward capital market investments, creating what analysts term a ‘seesaw relationship’ between household and non-bank deposits.
Quantifying the Shift
August household deposit growth reached only RMB 110 billion, representing a year-over-year decline of RMB 600 billion. This marks the second consecutive month of negative growth compared to 2024 levels. Simultaneously, non-bank deposits—those held by securities companies, fund managers, and insurance institutions—increased by RMB 1.18 trillion, maintaining the elevated levels seen in July.
The deposit migration phenomenon coincides with narrowing M1-M2 spread, which reached -2.8% in August, the smallest gap since June 2021. This convergence suggests increased monetary activity as funds move from longer-term savings into more liquid instruments, potentially destined for investment or consumption.
Understanding Monetary Indicators
The movement between different monetary aggregates provides crucial insight into financial system dynamics. M1, comprising currency in circulation and corporate demand deposits, grew 6.0% year-over-year in August, accelerating 0.4 percentage points from July. M2, which includes broader deposit categories, maintained 8.8% growth, unchanged from previous month levels.
Components and Implications
In the People’s Bank of China’s statistical framework, M1 includes currency in circulation (M0), corporate demand deposits, and payment institution customer reserves. M2 expands this definition to incorporate corporate time deposits, household deposits (both demand and time), other deposits, and non-bank financial institution deposits.
Non-bank deposits specifically refer to funds that insurance companies, fund management firms, and securities companies hold within the banking system. Market participants closely monitor these figures because when households prepare to invest in capital markets, they typically transfer funds from personal bank accounts to brokerage accounts or investment products—a process that reduces household deposits while increasing non-bank deposits.
Expert Perspectives on Deposit Migration
Financial analysts offer varied interpretations of these developments. Li Chao (李超), chief economist at Zhejiang Securities (浙商证券), notes that the narrowing M1-M2 spread reflects improved monetary activity, suggesting households and corporations are converting time deposits to demand deposits for consumption or investment purposes.
Zhang Jiqiang (张继强), chief macro analyst at Huatai Securities (华泰证券), identifies four factors driving M1 recovery: declining deposit rates prompting asset reallocation; strong August equity market performance increasing transaction demand; low base effects from 2024 deposit regulations; and positive impacts from foreign exchange settlement, debt resolution, fiscal expenditures, and shortened corporate payment cycles.
Structural Changes and Market Impact
The data shows RMB deposits increased by RMB 2.06 trillion in August, but this represented a year-over-year decline of RMB 160 billion. The contrasting movement between household deposits (declining) and non-bank deposits (increasing)初步印证了居民存款向股市等资本市场转移的趋势 (preliminarily confirms the trend of household deposits moving toward stock markets and other capital markets).
Zhao Wei (赵伟), chief economist at Shenwan Hongyuan Securities (申万宏源证券), observes that the most notable change in August financial data was the deposit migration phenomenon. July and August marked the first time in 2025 that household deposit growth fell below seasonal patterns, with the inverse relationship between household and non-bank deposits suggesting close connections to capital market performance and reflecting initial signs of changing household asset structures.
Guo Lei (郭磊), chief economist at GF Securities (广发证券), further analyzes that the deposit structure characteristics—significantly slower household deposit growth alongside substantially faster non-bank deposit growth—resemble July patterns, indicating the household deposit migration trend continues strengthening.
Sustained Movement Toward Equity Markets
July non-bank deposit growth reached RMB 2.14 trillion, the highest同期水平 (comparative level) since records began in 2015, representing a year-over-year increase of RMB 1.39 trillion. This surge coincided with significantly improved market activity—the Shanghai Composite Index rose 3.74% that month, while trading volume across both exchanges increased over 40% month-over-month.
Market Dynamics and Future Expectations
Most analysts believe July’s substantial non-bank deposit growth signals household deposits moving toward financial products, with bull market conditions serving as an important catalyst—strong capital market performance attracts funds into non-bank institutions, subsequently driving non-bank deposit increases.
August data suggests this trend is strengthening. Wang Jian (王剑), chief financial industry analyst at Guosen Securities (国信证券), notes that since July, positive macro narrative changes including ‘anti-involution’ signals have improved long-term economic fundamental expectations, driving continued capital market improvement. Simultaneously, with bond market interest rates at low levels unlikely to decline further, fixed-income wealth management products’ yield attractiveness has diminished, guiding funds toward equity markets.
Zhang Jiqiang suggests that while non-bank deposits serve as an important indicator for observing capital market inflows, they primarily function as a lagging indicator. Their growth rate recovery初期往往是牛市中继信号 (often represents a bull market continuation signal in early stages). He indicates the current non-bank deposit growth recovery began in January 2025, suggesting ample stock market liquidity conditions overall, though household deposits haven’t yet shown large-scale migration signs, requiring continued monitoring of relative changes with time deposit proportions serving as important reference for trend judgment.
Alternative Interpretations and Nuances
Guan Tao (管涛), global chief economist at Bank of China Securities (中银证券), offers a more nuanced perspective. He suggests that using non-bank deposit changes to explain stock market fluctuations might be more reliable than tracking household deposits.非银存款来源既有居民个人，也有机构（含企事业单位）(Non-bank deposit sources include both individual households and institutions [including enterprises and institutions]).
Broader Financial Disintermediation
Guan notes that non-bank deposit increases represent a financial disintermediation phenomenon belonging to broad ‘deposit migration,’ but don’t necessarily directly reflect household deposit decreases or declines—the narrow definition of ‘deposit migration.’ Based on historical data analysis, recent years’ non-bank deposit increases have frequently coincided with household deposit growth, reflecting that with economic development and income growth, household asset diversification hasn’t yet affected the simultaneous growth of household deposits and non-deposit asset allocations.
This also意味着居民从存款到权益类资产的多元化配置还有更加广阔的空间 (implies households still have substantial space for diversified allocation from deposits to equity assets).
Concurrent Trends: High Savings and Deleveraging
Contrasting Savings and Credit PatternsContrasting with high savings, household loan growth remains weak with obvious ‘more saving, less borrowing’倾向 (inclination). January-August household RMB loans increased only RMB 711 billion, substantially lower than the RMB 729 billion year-over-year increase. The household RMB deposit-loan gap continues widening (new deposits minus new loans), reaching RMB 8.98 trillion and RMB 9.06 trillion in July and August respectively.
Household sector deleveraging trends continue. The Chinese Academy of Social Sciences’ Q2 2025 macro leverage ratio report shows overall macro leverage increased 1.9 percentage points quarterly, rising from 298.5% to 300.4%, but household sector leverage ratio declined counter-cyclically by 0.4 percentage points, falling from 61.5% to 61.1%, with household and corporate debt growth remaining at historical lows.
The report analyzes that the household sector’s renewed deleveraging trend stems mainly from unstable foundation for real estate market stabilization, underutilized service consumption potential, and although durable goods replacement programs provide some consumer loan support, declining property sales and increased mortgage prepayments cause mortgage scale contraction, ultimately pulling household leverage ratio downward.
Policy Implications and Market Outlook
In this context, consumption promotion policies’ importance becomes increasingly prominent. The government has introduced multiple measures to stimulate household consumption willingness, including distributing consumption vouchers to directly encourage goods and services purchases. The People’s Bank of China has also launched personal consumption loan and service industry business entity loan discount policies, newly establishing service consumption and pension relending tools to help boost consumption confidence and挖掘有效消费需求 (excavate effective consumption demand).
Wen Bin (温彬), chief economist at China Minsheng Bank (民生银行), indicates that as various policies gradually take effect, related sectors’ existing credit demand有望进一步释放 (expected to further release). However, retail loan growth stability and sustainability still depend on substantive improvement in long-cycle variables like employment and income—only then can household consumption and housing demand achieve sustained recovery.
Synthesis and Forward Guidance
The sustained deposit migration trend signals evolving Chinese household investment behavior amid changing monetary conditions and policy environments. While caution persists regarding economic outlook—evidenced by high savings rates and deleveraging—the movement toward capital markets suggests growing confidence in equity investments or dissatisfaction with traditional deposit yields.
Market participants should monitor several key indicators: monthly household versus non-bank deposit flows, M1-M2 spread dynamics, equity market performance, and policy developments affecting consumption and investment. The convergence of low deposit rates, improved market sentiment, and policy support for capital markets likely sustains the deposit migration trend in coming months.
Financial institutions should prepare for continued asset allocation shifts, developing products that meet evolving household investment preferences while maintaining prudent risk management. Investors should recognize that while deposit migration supports market liquidity, sustainable equity market performance ultimately depends on fundamental economic improvement and corporate earnings growth.
The deposit migration phenomenon represents both challenge and opportunity—challenge for banks facing deposit outflows, but opportunity for capital markets seeking sustained liquidity and for households seeking improved returns on savings. How this reallocation evolves will significantly influence China’s financial landscape through 2025 and beyond.
