In April 2024, China's total deposits dropped by 3.9 trillion yuan, roughly $728 billion, or 1.3 percent (see graph below), as investors sought higher returns and Chinese policymakers targeted companies exploiting preferential deposit rates to store cash in banks. One-year deposits at China's largest banks now offer a record-low interest rate of just 1.45 percent.
China's efforts to boost economic growth by making bank deposits less attractive have led to a record outflow of cash, with a significant portion moving into bonds and wealth management products. This isn't just happening in China. As the Federal Reserve Bank of Kansas City reported in 2023 a similar effect was happening in the US:
"Bank deposit outflows continued during 2023 despite rising deposit rates. One possible explanation is that deposit rate increases have not kept pace with rising yields on other investments. For example, spreads between bank deposit rates and yields on deposit substitutes such as ...
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