China’s Massive Savings Surge Sparks Revenge Spending Frenzy
Chinese households have accumulated the largest amount of savings in history, with $2.6tn in bank deposits last year alone, as strict anti-coronavirus policies reduced consumer spending.
Some analysts anticipate that only $200 billion of pent-up demand will be spent this year despite China’s efforts to stimulate a rapid recovery, despite the anticipation of a wave of spending as consumers release pent-up demand after China’s decisive actions to tackle the pandemic.
According to Alicia García-Herrero, chief Asia Pacific economist at the French investment bank Natixis, the potential impact of Chinese consumers on the global economy is being overestimated.
She believes Chinese citizens will not easily spend their excess savings. Despite this, many experts remain hopeful that the spending power of Chinese consumers can drive global growth.
The International Monetary Fund recently announced plans to upgrade its global economic forecasts as China’s economy reopens after three years of strict COVID-19 restrictions.
Data from the People’s Bank of China shows that household deposits in the country experienced record growth of RMB 17.8tn ($2.6tn) in 2022, a significant increase from RMB 9.9tn in 2021.
Consumers are expected to eagerly spend a significant portion of their “extra” savings that have accumulated as a result of China’s economic growth being more heavily concentrated at the beginning of the year.
Economists at Morgan Stanley report that increased consumption primarily drives this growth as household savings have grown to between RMB 3tn and RMB 4tn due to restrictions and precautions are taken during the Covid-19 pandemic. Additionally, the job market and income expectations are also recovering.
Analysts say that a significant portion of the savings cannot be easily used for spending. Lin Yingqi, from China International Capital Corp, a domestic investment bank, stated that approximately half of the Rmb 8tn in “excess” savings from last year was due to cautious households transferring their riskier investments to safer options, such as bank deposits.
Additionally, Lin stated that another Rmb 1tn came from natural growth in income, and a further RMB 1.5tn tied up in long-term deposits. Based on these calculations, only Rmb 1.5tn would be available for potential “revenge spending.”
