According to data released by the People’s Bank of China on Monday, renminbi deposits, including household deposits, increased by $2.78 trillion, a year-on-year increase of around $705 billion.

Household deposits rose to about $1.52 trillion in the first half, an increase of $429 billion yearly.

But why are people increasingly fond of saving money in recent years?

Before getting to know the current situation, let’s discuss how the Chinese may have formed their saving habit.

How the Great Famine and Cultural Revolution influenced Chinese saving habit

China suffered from the great famine from 1959 to 1961. In a report from Jstor, a digital library, the famine took the lives of up to 45 million people.

Another report claims that Chinese residents have a strong sense of risk aversion when a lack of food seriously jeopardizes people’s health and lives. The three years of the great famine left an imprint on generations. Therefore, they put funds into banks to avoid uncertain disasters. <Footage 5-Uncertainty p158>

Another remarkable event for the Chinese was the Cultural Revolution, officially known as the Great Proletarian Cultural Revolution. It took place from 1966 to 1976 in China. The innocent-sounding name belies the carnage it inflicted on the country’s people.

The revolution was launched under the direction of Chinese Chairman Mao Zedong and ended in the fall of 1976. However, contrary to Mao’s initial goal to strengthen the regime, the revolution brought opposite effects.

Many people were killed in the revolution (estimates range from 500,000 to 2,000,000), millions were displaced, and the country’s economy was completely disrupted. 

The Guardian says the revolution thrust China into 10 years of turmoil, bloodshed, hunger, and stagnation. Although some Chinese tend to consume more luxury goods in recent years, they have already formed a savings habit. 

Moreover, there is a report on Sage Journals about the role of culture and how it affects people’s strategies toward economic decision-making. According to the author, most Chinese would not abandon traditional values to adopt a different, entirely Western consumer culture due to global consumerism. <Footage 6>

How lives and spending habits changed due to the pandemic

Regarding today’s situation, the Covid pandemic has affected Chinese residents’ lives in many ways. Many of them experience changes. Before we go any further, let’s take a moment to view a video about the employment situation in China.

This video recorded by netizens shows how desperate the Chinese are for work. [Footage 1:  8:17-10:15]

In the video, homeless residents shelter under bridges. They live in limited conditions without water or electricity and sleep on rollaway beds or in homemade tents. These people have lost their jobs and cannot return to their hometowns. All they want is to find work for their survival. 

Fear of unemployment and income loss

A recent analysis of the trend of China’s unemployment based on the results of its May survey was published by the Institute of Economics of the Chinese Academy of Social Sciences.

The figures reflect that COVID-19 outbreaks have clustered around critical centers of the country, such as Shanghai’s financial hub and Beijing’s capital.

As of May, only 1.23 million new jobs became available. The figure is unchanged from March to April but is lower than last year’s period. Meanwhile, the unemployment rate in 31 major cities and towns rose to 6.9%.  

The pandemic has significantly impacted start-ups and individual industrial and commercial households that have flocked to major cities. This has gradually reduced employment capacity. 

Stories from Chinese residents, in this case, serve as solid evidence. 

We found a story about a man seeking a job, but the result surprised him as there seemed to be no more opportunities left.

He said, “I found a job in a video company, self-publishing. And then their director just called me to say that they are downsizing because of the epidemic. So there may be no more opportunities left for me.” <Footage 3: 0:50-1:05>

It is one of the reasons for the Chinese to be more cautious in saving.

The People’s Bank of China survey results show that 58.3% of residents preferred to save more. It’s an increase of 3.6 percentage points from the previous quarter. 

Another story is from Xiao Wang, who works in a technology company in Haidian. He has decided to cut down on any unnecessary expenses and save at least an extra $148 a month. He was hit hard when he saw the entire department next door being laid off in March. The incident made a big difference to him because there were no signs of layoffs in his department previously. 

Xiao Wang said, [quote] “Everyone went to work normally in the morning. In the afternoon, everyone was called to talk, sign a resignation agreement, and then a department just disappeared.“ [end quote] 

Less spending 

Chinese residents are now cutting back in fields like housing, education, and others.

For example, Zhang, an executive of a state-owned enterprise, told the Beiqing Daily reporter that her family’s savings have increased in the past two years. She saves around $19,000 annually by cutting back on traveling and her child’s remedial class fees.

Besides, residents’ willingness to purchase housing continued to fall as real estate market regulations were tightened. Housing consumption consequently decreased. 

Data from the National Bureau of Statistics confirms the decline in household consumption. 

From January to May this year, the total retail sales of social consumer goods were around $2.54 billion, a year-on-year decrease of 1.5%. In April this year, it fell by 11.1% year-on-year, and in May, it fell by 6.7% year-on-year.

Under current unemployment conditions, residents’ uncertain expectations for future income and expenditure have increased. As a result, it has significantly raised residents’ willingness to save.

Furthermore, recent bank-related incidents have made them hesitant to participate in financial industries.

Reluctance to make local financial investments

In addition to consumption, there is an inevitable trade-off relationship between resident deposits and investment and wealth management.

On March 30, the People’s Bank of China released three quarterly survey reports on urban depositors, entrepreneurs, and bankers. According to the report, 21.6% of residents decide to invest more. It’s a decrease of 1.9 percentage points from the previous quarter.

First of all, many investors were heartbroken in the first quarter. They suffered losses from bank incidents. 

In early February, Li purchased a 6-month wealth management product from a large state-owned bank with a year-end bonus of around $4,400. She was shocked after losing the money, for she thought that bank financing brings profits without loss. 

Meanwhile, her friend Wu invested $3,000 in a bank product and lost about $887. Finally, Wu concluded that the risk of investing and financial management was too great.

The pandemic lockdown butterfly effect is a countable reason as it affects their income and, thus, willingness to invest. 

Chen Zhaohui 陈朝晖, Professor at the University of Virginia, said: <Footage 4: 0:30-1:21. Please run the script as the caption in the video> 

“If the government promised that we would never close the city easily, then people would go back to their old life. But now it’s just the opposite. People are very worried about the future. Now even if the government relaxes (the city closure), people can go out and find a job and make some money, but you don’t dare to spend money! You don’t know when the city will be closed again, do you? If you’re a small business owner and you want to invest, you don’t dare to invest! You have just invested, not yet seen the benefits, and suddenly he will be closed, or out of this thing that thing, you do not dare to invest. So, now even if you unblocked, we began to return to normal, we earned money after, first, do not dare to spend, second, do not dare to invest.” 

To sum up, the high levels of uncertainty avoidance in China are related to increasing saving rates among Chinese.

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