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As inflation hits pockets, Chinese choose to save, invest
(Xinhua)
Updated: 2004-04-04 10:49
A low interest rate paralleled with inflation has not changed the habit of
Doctor Huang from Beijing Railways Hospital to deposit his money into a nearby
bank.
He was seen Saturday afternoon joining a queue at a Bank of China office in
western Beijing, holding a passbook while waiting for a clerk to accept his
notes. "If I do not make deposits, I would lose more," Huang said.
"Anyway, money is safe in banks," he added.
"I often hear some people complain in the hall, but customers are as many as
before," said Xu Lingyan, an accountant of the office.
The Chinese have become accustomed to bank savings, and more and more choose
to save, but they are now living in a new " negative interest rate" era, last
witnessed nearly eight years ago.
The actual one-year interest rate for Renminbi (RMB) deposits at banks stood
at -1.6 percent after deducting goods price hikes and taxes levied on interest
income in the first month of the year.
And the rate was still in negative territory in the following month.
China's central bank sets the same interest rates for deposits of different
terms at all commercial banks among other savings institutions.
Since 1996 the central bank had lowered rates eight times in a row, which
was, however, neglected by the country's "staunch savers". RMB deposits
nationwide continued to reach new records before mounting to 11 trillion yuan
(US$1.3 trillion) by the end of February, a nearly 20 percent surge on a yearly
basis.
STOCK MARKET IN MARSH
Another method of investment, the stock market, in China is still far from
having the number of shareholders enjoyed by developed countries.
Most Chinese stockholders had a bitter experience: The composite index of the
Shanghai stock exchange, one of the country's two bourses, plummeted from a high
of 2,245 points to a low of 1,307 points in the past three years.
Lack of trust in brokerages and market manipulation have made people lose
much of their confidence in the market. Street gossip about the stock market was
seldom heard.
But on February 1, China's State Council issued its latest - and also
strategic - document on promoting the stability and development of the laggard
capital markets.
The State Council has vowed to make non-traded shares - representing as much
as two-thirds of the stock market capitalization - of listed companies tradable,
but urged the protection of investors' interests, especially those of individual
investors, while addressing this issue.
Though investors still fear any concrete plan to dispose of those shares will
significantly undercut the value of their existing holdings, the document
includes some other initiatives that helped to prop up the market - at least for
now.
The central government said it would promote the setting up of a
long-expected second board and establish a multi-layer capital market system,
which will include corporate bonds and futures products. It plans to regulate
the operation and governance of listed companies in various ways including
putting in place improved management systems for share issues.
Some remain cautious.
"To buy shares now is like 'committing suicide' since the prices have rallied
in recent days, accumulating too many risks," said Fan Wenwei, a manager from
Great Wall Securities Company.
"I have emptied out all my stock holdings and start to seek other investment
channels," he said.
EMERGING OPPORTUNITIES
A Mr. Yuan working with a Beijing-based newspaper recently bought two funds +
one invested in tourism service and the other in securities market + before he
goes to work overseas.
"I am unwilling to see my deposits sit and shrink in value at banks," he
said.
A number of well-performing funds recorded annual return ratios leaping to as
much as 10 to 20 percent in 2003, hitting many in the eye including those having
little know-how of the fund market.
China has now 30-odd fund management firms and nearly 100 funds. In February,
China Construction Bank issued the first domestic " break-even fund", whose
principals would be "safe" as guaranteed by companies with ample strength.
A manager of the fund said the so-called Yinhua Break-even Fund sold well
because the Chinese have a tradition of being frugal and are reluctant to seek
profits in the face of risks.
The nation's treasury bonds are also favored on the back of their zero risk
but higher returns than bank savings.
The Ministry of Finance will issue new book-entry bonds totaling 110 billion
yuan (US$13.3 billion) from April 1 to May 31 with three-year ones bearing an
annual interest rate of 2.52 percent, and 2.83 percent for a five-year term.
The rates are both above the 1.98 percent yield from one-year bank deposits
and additionally, income from the bonds is not taxed.
Some put money into purchases of new apartments while other investors turn to
gold goods.
A central bank report said earlier that China's consumer price index (CPI),
the most widely watched barometer on inflation, should be reined in at about 3
percent this year, although the "spill-over" factor from 2003 alone would bring
the index a 2.2 percent rise.
Decision-makers have worries about raising the bank interest rates, according
to analysts.
A major engine for China's economic growth should be consumer demand and an
interest rate hike is nonetheless damaging to consumption growth. More "hot
money" will flow into China to take advantage of the interest gaps between the
RMB and the US dollar if the People's Bank of China announces rate hikes prior
to the US Federal Reserve, they note.
"If the virtually negative interest rates stay put, financial institutions
with foresight will work to tap more products for investors," said a People's
Bank expert.
"Ordinary people should not put all their eggs in the same basket," he
suggested.
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