Summary of Key Points
In the first half of this year, residents moved over 3 trillion yuan in deposits from banks to asset management products such as financial investments and funds. However, this trend of transferring funds slowed down temporarily in June. The market generally believes that this is just a “mid-game pause,” and the trend of moving deposits will continue. What's more concerning is that the growth rate of asset management products far exceeds that of social financing (social credit) and M2 (the total amount of money in the economy), indicating that a large amount of capital is “circling” within the financial system rather than flowing into the real economy. Regulatory authorities have made it clear that they intend to regulate such behavior to prevent it from undermining the effectiveness of monetary policy.
I. Why Did the Trend of Moving Deposits Slow Down Suddenly in June?
In June, residents added 1.95 trillion yuan in deposits, but non-bank deposits (deposits held by fund and financial management companies at banks) decreased by 990 billion yuan. This suggests that residents have temporarily stopped moving their money from banks to asset management products, and some even returned it to banks. There are three reasons for this:
1. Market Volatility: The stock and bond markets were volatile in June, resulting in limited returns on financial investments and funds. As a result, residents chose to wait and see rather than rush to transfer their money.
2. Banks’ Efforts to Meet Quarterly Performance Targets: At the end of June, banks face semi-annual performance evaluations and will try to attract more deposits. For example, many financial products matured during this period, and banks encouraged residents to reinvest the matured funds into bank deposits, leading to an increase in resident deposits and a decrease in non-bank deposits.
3. Adjustments in Interest Rates: The central bank lowered market interest rates in June, making non-bank institutions’ (such as fund companies’) demand deposits at banks even less attractive. As these deposit rates were already low (around 1.4%), some funds were directed elsewhere.
II. Will the Trend of Moving Deposits Reverse?
Many people wonder if the slowdown in June means that the trend has stopped altogether. The answer is no; it will continue. There are two reasons for this:
1. Lack of Better Alternatives for Other Assets: Currently, assets such as bonds, foreign exchange, and real estate do not offer significant returns. In comparison, asset management products remain more attractive.
2. Low Deposit Rates: Bank deposit rates have been declining, while asset management products (such as equity funds and AI-related financial investments) may offer higher long-term returns despite their risk. Given the active AI industry, this could continue to attract residents to invest in these risky assets.
III. Asset Management Products Are Popular, but “Capital Circulation” Is a Major Problem
The scale of asset management products grew rapidly in the first half of the year (reaching 124.8 trillion yuan by the end of June, a year-on-year increase of 12.7%). However, the money has not actually flowed into the real economy but has instead circulated within the financial system. For example:
- Residents buy financial products → Financial management companies deposit the funds back in banks (interbank deposits) → Banks then lend the money to other financial institutions, rather than to businesses or individuals.
- Businesses use the low-interest loans to purchase financial products, which are later deposited back into banks, creating a closed loop of “loans → financial investments → deposits.” Although this appears to indicate active capital flow, real enterprises do not receive the benefits.
Data supports this: The growth rates of asset management products and corporate fundraising exceed those of social financing and M2, indicating that a large amount of capital is “circling” within the financial system rather than supporting the real economy.
IV. Regulators Are Taking Action to Address the Issue of “Capital Circulation”
The central bank has made it clear that it intends to regulate behaviors that undermine the effectiveness of monetary policy. Why? Because:
- The central bank aims to lower loan rates by reducing deposit rates, thereby helping businesses with financing. If residents move their deposits to asset management products and these products then reinvest the funds at higher rates back into banks, it will increase the banks’ costs and prevent them from lowering loan rates effectively.
- Regulators do not want to prohibit residents from buying financial products but aim to prevent financial institutions from engaging in competitive practices that raise their costs and affect the real economy. For instance, some institutions may inflate the returns on financial products to attract customers, increasing the overall cost for banks and impacting the real economy.
In summary, regulators need to ensure that funds flow from banks to businesses and real projects, rather than remaining within financial institutions.
Implications for Individuals:
- The trend of moving deposits will continue. Those interested in financial investments can proceed but should be cautious about risks, especially during market volatility.
- In the future, financial products may become more regulated, with lower “excessively high” returns. When making choices, it is important to consider the actual use of the funds (whether they support the real economy).
- Bank deposit rates are likely to continue to decline, so keeping all your money in banks may not be the most profitable option. However, it is also advisable not to invest all your funds in high-risk products; a balanced allocation is necessary.
Overall, the transfer of deposits from banks to other financial assets is a normal market behavior. However, the issue of “capital circulation” within the financial system must be addressed to ensure that money actually benefits the real economy and enhances individuals’ financial stability.