Key Points
- China’s non-bank deposits surged by a record ¥2.14 trillion RMB ($295.3 billion USD) in July, the highest since 2015, sparking debate about a potential flood into the A-Share market.
- The “seesaw effect” theory suggests falling household deposit rates (which decreased by ¥1.1 trillion RMB) are pushing funds towards more attractive capital markets.
- While some firms see significant liquidity and room for market growth (current household deposits to A-share market cap ratio is 1.7x, compared to a bull market peak of 1.1x), others warn against a sentiment-driven market frenzy.
- A nuanced view suggests the money is flowing indirectly, primarily from high-net-worth investors and into bank wealth management products (like “fixed income plus” funds), rather than directly from retail investors into stocks.
China’s non-bank deposits just saw a massive ¥2.14 trillion RMB ($295.3 billion USD) surge in July, a record-breaking high that has the market buzzing with one huge question: is this cash about to flood into the A-Share stock market?
This isn’t just a small jump.
It’s the highest level for this period since China started tracking the data in 2015.
The year-over-year increase is a staggering ¥1.39 trillion RMB ($191.6 billion USD).
Historically, a big spike in non-bank deposits often goes hand-in-hand with a hot stock market, as investor money moves into brokerage accounts.
So, what’s really going on? Brokerage firms are split, and the debate is heating up.
The Bull Case: Why This Cash Could Supercharge Stocks
Several major firms believe this surge is a clear signal of money moving towards the capital markets. Here’s the breakdown of their arguments.
It’s a “Seesaw Effect”
The core idea, shared by firms like Zheshang Securities (Zheshang Zhengquan 浙商证券) and Everbright Securities (Guangda Zhengquan 光大证券), is a classic “seesaw effect.”
- As household deposit interest rates fall, people are looking for better returns.
- At the same time, a recovering capital market makes stocks and other assets look much more attractive.
- So, money moves out of traditional savings accounts (household deposits) and into brokerage and asset management accounts (non-bank deposits).
July’s data shows this perfectly: while non-bank deposits shot up by ¥2.14 trillion RMB, household deposits decreased by ¥1.1 trillion RMB ($151.7 billion USD).
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There’s Simply More Liquidity
Huachuang Securities (Huachuang Zhengquan 华创证券) points out that non-bank deposits are basically unallocated funds in the financial system. When an institution buys stocks or bonds, the money just moves from one non-bank account to another—it doesn’t disappear. A high level of these deposits means financial institutions are flush with cash, ready to be deployed.
Industrial Securities (Xingye Zhengquan 兴业证券) adds that the People’s Bank of China (Renmin Yinhang 人民银行) helped by injecting a net ¥400 billion RMB ($55.2 billion USD) into the market in July, further boosting liquidity.
Room to Run: The Market Isn’t Overheated (Yet)
Even with the recent market rally, Huachuang Securities offers a fascinating data point for perspective:
- Historically, the peak of a bull market rally in the Wind All-Share Index (Wan De Quan A Zhishu 万得全A指数) corresponds to a ratio of household deposits to A-share market capitalization of around 1.1x.
- As of the end of July, that ratio was still at 1.7x.
This suggests that there’s still a significant amount of household wealth sitting on the sidelines that could potentially enter the market.
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A Dose of Reality: Time for a Rational Approach
But not everyone is buying the hype.
China Merchants Securities (Zhaoshang Zhengquan 招商证券) is urging investors to take a step back and think rationally.
They argue that the “bank deposits migrating to the capital market” narrative is a story that gets told during every single bull market.
Yes, the amount of money in maturing fixed deposits is massive—around ¥105 trillion RMB ($14.5 trillion USD) set to mature before 2024 ends.
But here’s their crucial point: a sudden, large migration of deposits into the market is a result of market sentiment, not the cause of it.
If the market gets too far ahead of itself by translating a long-term trend into a short-term frenzy, it just leads to more volatility.
According to them, this “will only lead to unnecessary market volatility, diminish the wealth-holding experience… and conversely, increase the difficulty of realizing the long-term logic of household wealth entering the capital market.”
Their message is clear: let’s cool our jets.
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The ‘Indirect Route’: Investors May Not Be Day-Trading
Then there’s a third, more nuanced take from Western Securities (Xibu Zhengquan 西部证券).
They believe the money is moving, but maybe not in the way you think.
Their observation is that it’s not the average retail investor YOLO-ing into stocks. Instead, the big movers are high-net-worth investors: private equity, leveraged funds, and speculative capital.
So where is the retail money going? Not directly into stocks, but into bank wealth management products.
From there, the money flows indirectly into the equity market through channels like “fixed income plus” funds, which offer a mix of safer bonds with a smaller allocation to stocks.
They back this up with a few key observations:
- Retail participation isn’t high: Current levels are lower than the rally last year and way behind the bull markets of 2015 and 2020.
- Retail fund inflows are limited: Data on small-order net buys shows that retail investors aren’t piling in.
- Bank-securities transfer balances are down: High-frequency data suggests a marginal decline, another sign that retail investors haven’t entered the market in droves.
- Primary Drivers: High-net-worth investors, private equity, leveraged funds, speculative capital.
- Retail Money Destination: Bank wealth management products.
- Flow Mechanism: Indirectly into equity market via “fixed income plus” funds.
- Evidence/Observations:
- Retail participation is not high compared to previous rallies.
- Limited retail fund inflows based on small-order net buys.
- Marginal decline in bank-securities transfer balances.
- Forecast: This indirect flow will become the main source of new capital for the market.
Their forecast? This indirect flow will become the main source of new capital for the market moving forward.
The Final Takeaway
So, is a wave of cash hitting the A-Share market? The answer seems to be yes, but the story is complex.
The bulls see a classic setup: low interest rates and high liquidity are pushing money into stocks, with plenty of room for more growth.
The skeptics warn against getting caught in a sentiment-driven bubble, arguing that this is a long-term shift, not an overnight flood.
And the pragmatists suggest the money is taking a safer, indirect route through managed products, led by sophisticated investors rather than a retail frenzy.
For anyone watching the Chinese market, the key is to look past the headline number and understand how the money is moving.
Keeping an eye on the growth of these non-bank deposits will be crucial for gauging the health and direction of China’s A-Share market.
