High rates of bank deposits may harm the economy

Despite the government's efforts to encourage consumption, bank deposit rates remain high. An editorial on The Economic Observer analyzes why (excerpts below).

At a recent forum on investment, when asked how he invests, Justin Lin Yifu, former vice-president and chief economist of the World Bank said with a smile: "my money is in the bank on a time deposit. The money grows when I sleep."

Depositing his savings was the best choice for him as he concentrates on his research.

That's a choice for the majority of China's people, too. Data from the People's Bank of China shows that the deposit surplus has, for three succeeding months, exceeded 43 trillion yuan ($7 trillion), or over 30,000 yuan per person, the world's highest, according to Xinhua News Agency. Over half of Chinese families have their fortunes in deposits.

However, this might not be the best choice.

Even though the major banks are owned by the State, putting money in a bank account does not mean it is totally safe – for the past several years, with inflation, many residents saw their money shrink.

But people don't have many better choices, either. Risks in the financial markets, recessions, and limits on purchasing properties – all these have driven money back into the banks.

The government faces a similar dilemma, too. Exceedingly high deposit rates harm consumption and the economy.

In 1998 and 2008, the government tried to encourage people to withdraw their money and spend it. But to no avail. People want to have ready cash for education, healthcare and purchasing property.

The government could do more to dispel public worries, so that they don't have to save money for these rainy days.