(Yicai) Aug. 17 -- China’s non-bank deposits expanded by CNY1.03 trillion (USD152.8 billion) less than a year earlier in July. Analysts are divided over whether this signals a soft capital market or a slowdown in household deposit shift towards non-banking institutions.

China’s outstanding yuan deposits stood at CNY346.47 trillion (USD51.39 trillion) as of July 31, a rise of 8.1 percent from a year earlier, with the figure for the first seven months up by CNY17.79 trillion (USD2.63 trillion), a decline of CNY650 billion (USD96.4 billion) from the increase in the same period last year, according to data released by the People’s Bank of China on Aug. 14.

Outstanding Chinese yuan deposits totaled CNY346.44 trillion as of June 30, putting the month-on-month increase in July at just CNY30 billion (USD4.4 billion), down by CNY1.03 trillion from the jump a year earlier. Moreover, this was the lowest month-on-month increase since April last year.

In comparison, China’s outstanding yuan deposits rose CNY500 billion in July last year from a year earlier. Between 2020 and 2024, they only expanded year-on-year in 2020 and 2022 by CNY80.3 billion and CNY44.7 billion, respectively, while they fell by CNY1.13 trillion in 2021, CNY1.12 trillion in 2023, and CNY800 billion in 2024.

Household deposits posted a net drop of CNY630 billion in July from a year earlier, even though the decline narrowed by CNY480 billion from the same period last year.

“Even though the balance of household deposits in China decreased, it posted a notable increase year-on-year, with precautionary savings intensifying, showing weak consumption and strong willingness to acquire leverage,” said Dai Zhifeng, chief banking analyst at Zhongtai Securities and director of its research institute. “Companies will likely face profitability pressure, limited cash flow, and a decline in incremental growth compared with a year earlier.”

The narrower the year-on-year decline in household deposits in July may stem from a subdued capital market, which weakened the flow of household savings into non-bank deposits and further slowed down deposit migration, according to Lin Yingqi, banking analyst at China International Capital Corporation.

Zhang Yiwei, chief banking analyst at China Galaxy Securities, also believes that the household deposit migration persisted but likely lost momentum. Meanwhile, Zhong Linnan, senior macro analyst at GF Securities, had a different opinion.

“The contraction in household deposits was CNY480 billion smaller year-on-year in July, with demand deposits accounting for 15.3 percent of the total, up from 14.9 percent in June,” Zhong noted. “This, combined with increased new investor accounts in the Chinese mainland from a year earlier and little changes in newly launched equity fund shares, shows that households’ appetite for financial asset investment has not retreated amid market volatility.”

Moreover, the gap between M2 and M1 is narrowing, fueling discussions over improved money activation. M2 is a broad measure of money supply that covers cash in circulation and all deposits, while M1 is a narrow measure of money supply that covers cash in circulation and non-bank and non-government deposits.

M2 rose 7.7 percent to CNY355.51 trillion as of July 31 from a year earlier, down from an 8 percent increase a month earlier, according to PBOC data. M1 expanded 4 percent to CNY115.46 trillion in the period, unchanged from June. Therefore, the gap between M2 and M1 narrowed to 3.7 percentage points from 4 percentage points.

The financial sector and fiscal spending lifted M1 growth in July by 0.7 and 0.4 percentage points, respectively, Zhong said, adding that with robust exports and a strong exchange rate, cross-border capital flows likely continued to support M1.

M1 failing to widen its growth rate may reflect weaker risk appetite among government and public institutions, which shifted more demand deposits into time deposits, Zhong noted.

The narrower M2 growth was mainly due to a weaker year-on-year increase in government bond holdings, which dragged M2 growth down by 0.2 percentage points, Zhong explained. Meanwhile, Lin attributed the slowdown mainly to the base effect, as non-bank deposits expanded at a much slower pace than a year earlier in July.

Credit data posted a sharper contraction than usual in July. Chinese yuan loans fell by CNY340 billion last month, compared with a CNY50 billion drop in the same period last year, setting a record for the lowest monthly increase in yuan loans.

Among them, corporate loans declined by CNY130 billion last month, versus a CNY60 billion increase a year earlier. Corporate financing continued to skew toward short tenors, while bill financing provided far less support. Household loans dropped by CNY460.3 billion, narrowing the fall from CNY489.3 billion a year earlier. Medium- and long-term household loans remained weak, and deleveraging pressure lingered.

Editor: Futura Costaglione