ZH: China's $1.2 trillion savings glut in focus for recovery

ZERO HEDGE writes:

(By Ye Xie, Bloomberg Markets Live reporter and strategist)

The exact shape of China’s economic recovery depends on how much consumers pull out of the savings they accumulated during the pandemic (also see “What China Savings Mean For World Consumer Firms“).

While the jury’s still out, the pattern of post-lockdown saving rates in developed economies suggests that a spend-it-all approach is unlikely among consumers in China.

With slowing exports and sluggish housing investments, consumer spending is expected to be a key driver of economic growth. China bulls point to a record increase of new bank deposits of 8 trillion yuan ($1.2 trillion) last year as the dry powder that could be unleashed to support spending.

(…)

In reality, though, the increase in deposits exaggerates the actual size of precautionary savings. Because of market volatility, households moved money from financial investments, such as wealth management products, into bank deposits. A housing crisis reduced home purchases, leaving money in bank accounts. These funds were set aside for investments purposes and won’t necessarily be drawn upon for buying new cars and jewelry.

The change in the saving rate — how much people save from their annual income — relative to the pre-pandemic trend would be a more reliable measure for “excess savings.”

The saving rate increased to 33% in 2022, from about 30% prior to the pandemic, resulting in extra savings of 3 trillion yuan over the past three years, according to Goldman Sachs’s economists, including Maggie Wei and Hui Shan. It represents about 6% of disposable incomes, a fraction of the US’s 13% and the euro-zone’s 15% at the peak…

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