China – Saving for a Rainy Day?
Chinese household savings (measured as the annual increase in household deposits) have ballooned in recent years. In the ten years to 2017 household savings averaged Rmb4.75tr annually. This climbed to Rmb9.53tr over the next four years to 2021 and then doubled again to Rmb17.3tr in the last two years. Indications are that 2024 will show a similar number.
The flip side of this is, of course, household debt. Chinese household debt (as a % of GDP) has also risen steadily over the past two decades:19% in 2004, 29.8% in 2012, 55.8% in 2019 and 66.5% in 2023 according to Bloomberg economics. This is low by comparison with the United States and the United Kingdom where household debt (as a % of GDI) stands at 97.7% and 137.6% respectively according to OECD data, but it does make the point that Chinese households are willing to take on debt, primarily for property purchases.
For the statistical geeks, GDI (gross domestic income) is comparable to GDP (gross domestic product).
Surveys of Chinese household intentions over the last ten years have consistently suggested that circa 75% of households want to save or invest more and only circa 25% want to increase consumption. This is a cultural issue, and it is difficult to change long held intentions or preferences. ‘Get rich before you get old’ seems an appropriate adage.
The collapse in the residential property sector is not the cause of excessive savings but it has aggravated a pre-existing ‘condition’. Outstanding individual residential mortgages have declined 3% from their 1Q 2023 high.
We are reminded of the long-held view of our old friend Doctor Jim Walker that trade surpluses are a sign of economic weakness and not a sign of strength. China last posted a (tiny - $1.7bn) trade deficit in 1996. The trade surplus in the first half of 2024 reached $156bn, completely blowing away the previously record annual trade surplus of $98bn in 2021.
Recent policy announcements are cyclical in nature, not structural. China needs inflation not deflation and a trade deficit not a trade surplus. Can the authorities ever get their heads around this proposition?
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