Reduced bank deposits by Chinese households suggest that a large amount of
money is being invested in the capital market, according to the central bank.
Household deposits decreased by 167.4 billion yuan ($21.7 billion) in April.
In contrast, they increased by 60.6 billion yuan ($7.9 billion) at the same time
last year, the People's Bank of China said on its website yesterday.
The high growth rate of M1 a narrow measure of money supply that includes
cash and demand deposits plus diminishing household deposits suggests Chinese
households are keeping money on tap for investment in the capital market. The
red-hot stock market has grown by more than 50 percent this year after doubling
mania is sweeping the country despite warnings of a speculative bubble but small
investors are rushing to pull out money from bank savings accounts and deposits
to pump them into the share market.
Some are even mortgaging their houses or dipping into retirement savings to
feed the frenzy.
Economists say the government should take steps to moderate the price surge
or risk a sharp fall that could hurt millions of small investors.
"This is a very critical time. If policy adjustments take place now, the
market can still have sustainable development," Hong Liang, a Goldman Sachs
economist, told Associated Press. "The longer they wait, the harder the eventual
landing will be."
Enthusiasm for stocks is fueled in part by a lack of other attractive
investments and low interest rates.
Some have made fortunes in the booming real estate market, but the government
is cracking down on speculation to rein in soaring housing costs.
On Friday, the government announced it will raise the amount that Chinese
banks are allowed to invest in stocks abroad, possibly diverting some of the
money pouring into domestic markets. But economists said the amounts involved
will be too small to affect the country's money flows.
Regulators have also discussed raising interest rates on bank savings to make
them more attractive and creating other new investment options but have
announced no timetable. There has also been some talk of imposing a capital
gains tax to cool off speculation.
The securities watchdog on Friday urged stock exchanges, securities dealers
and other authorities to educate investors about the risks of stock market
The institutions must make investors understand that stock markets are risky
and they should be cautious in entering, especially those who use all their
savings or pawn their apartments for loans to invest in stocks, the notice by
the China Securities Regulatory Commission (CSRC) said.
Saying that the number of "irregularities" in the stock market was rising,
the CSRC also told listed companies, securities dealers and other related
institutions to release accurate, authentic, complete and timely information.
Agencies contributed to the story