(Yicai) April 16 — Chinese household deposits effectively flowed out of banks in the first quarter, but unlike in the past, the wealth management market did not absorb the funds and instead shrank, reflecting mounting pressures from falling yields and market volatility.
Household deposits increased by CNY7.68 trillion (USD1.13 trillion) in the first quarter, CNY1.54 trillion less than a year earlier, while deposits held by non-banking financial institutions rose by CNY2.03 trillion, up CNY1.72 trillion from a year ago, according to the People’s Bank of China. The shift indicates a reallocation of household funds, though not toward wealth management products as traditionally seen.
The total scale of wealth management products fell to CNY32 trillion (USD4.69 trillion) at the end of March, down CNY1.3 trillion from both the previous month and a quarter earlier, according to estimates by Huayuan Securities.
“At the end of the first quarter, banks faced considerable pressure from deposit assessments, resulting in wealth management funds flowing back to parent banks to boost deposits,” said Ming Ming, chief economist at Citic Securities. He added that capital diversion and other factors also weighed on product scale.
Looking ahead, the wealth management market is likely to remain constrained in the short term due to persistently low interest rates and rising equity market volatility.
“On the one hand, the interest rates remain low, leaving limited room for improvement in asset-side returns,” a person from a wealth management company told Yicai. “On the other hand, the volatility of the equity market has increased, and the uncertainty of equity-linked products still exists. In addition, institutional factors such as the quarter-end assessment mechanism may still cause short-term disturbances.”
Wealth management product yields have declined sharply this year. The average annualized yield fell from 3.72 percent in January to 2.96 percent in February and further to 2.26 percent in March, according to data from financial platform PY Standard. Analysts said the low-interest-rate environment has suppressed returns on traditional fixed-income assets, while heightened volatility in capital markets has led to net value declines, particularly during the broad global asset adjustment in March.
More importantly, industry insiders said the trend signals a shift in household asset allocation behavior. Wealth management products are no longer the primary destination for funds leaving bank deposits, and their share in household assets may enter a period of adjustment.
Editor: Emmi Laine
