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Chinese spurn bank deposits in stock market

(Xinhua)
Updated: 2007-04-30 09:02

Chinese bank staff can scarcely catch a breath these days as customers come crowding into agencies all over the country to withdraw their savings.

But depositors are not making a run on the banks. They just can't wait to invest in stocks, investment funds and other wealth management products in the hope of making a killing on the bullish stock market.

Chinese people used to deposit all their spare cash in banks, but now they are casting off their traditional notions of prudent money management, said analysts.

A survey conducted by the People's Bank of China, or the central bank, indicates a record low of 59.4 percent of the 20,000 respondents regarded bank deposits as the most important financial asset in the first quarter.

Meanwhile, an all-time high of 30.7 percent believed it pays to invest in the stock market, up 11.7 percentage points over the fourth quarter last year.

With large sums of money flowing from deposit accounts into stock trading accounts, China's saving deposits are growing much more slowly.

According to figures from the central bank, the country's renminbi savings deposits increased 1.88 trillion yuan in the first quarter this year, down 60 billion yuan on the same period last year.

In October last year, China saw savings deposits decline month on month for the first time in five years, when savings deposits dropped 7.6 billion yuan from the previous month.

"Chinese people have always been keen on putting their money in banks but soaring housing prices and low interest rates have made many realize that the yield on bank deposits is simply too low", said Huang Fuguang, a finance professor at Tianjin-based Nankai University.

"That's why people are turning to more lucrative investments, like stocks and shares", Huang added.

"Long queues of people withdrawing their deposits to invest in the stock market augur well for Chinese companies in need of capital, but not for bank loans", according to the China Securities Journal.

"People's enthusiasm for shares and other investments is fuelling the flow of money into the capital markets. And, as it develops, the stock market creates new investment products", said the report.

With millions of Chinese gleefully plunging into the stock market, the government is warning investors they are not immune from risks even in a bullish market.

Shang Fulin, director of the China Securities Regulatory Commission (CSRC), has said "a great number of investors are not aware of the risks they are exposed to and do not know how to control risk".

Last month the CSRC launched an education campaign targeted at stock and fund investors, requiring securities dealers to provide their clients with specially-made warnings.

The warnings explain the difference between investment funds and savings, tell people to invest in a way commensurate with their financial resources, and to be careful not to gamble away money saved for their old age.

"The education campaign will help protect investors' interests and lay the foundation for a sustained, stable development of the Chinese capital market," Shang added.