CICC: What is the potential for residents' deposits to move?

Signs of Deposit Migration Begin to Emerge Since May this year, with the rise of the stock market, we have observed signs of deposits migrating to the stock market, mainly including the following aspects: 1. Deposit Activation, Trend of Regular Deposits Shows Turning Point. In July, M1 grew by 5.6% year-on-year, continuing to rise by 3.3 percentage points from 2.3% in May. The rise in M1 is related not only to the low base effect from last year's cleanup of manual interest compensation but also to the further activation of deposits. The trend of regular deposits has also shown a turning point for the first time since 2023, reflecting that residents' fixed-term deposits and bank wealth management products have not been reinvested upon maturity, becoming potential funds for entering the market. 2. Increased Popularity of Stock Funds. Since the beginning of this year, the growth of fixed-income wealth management products, including bank wealth management, fixed-income public funds, and insurance, has significantly slowed compared to last year, while the growth rate of equity public products and private securities investment funds has rebounded. 3. Rapid Growth of Margin Account Funds in Securities Firms. Historically, the increase in non-bank deposit growth is usually due to two factors: deposits entering securities firms' margin accounts in preparation for entering the market; residents subscribing to bank wealth management, fixed-income funds, etc., with non-bank institutions subscribing to fixed-term deposits. We observed that in July, non-bank deposits increased by 1.4 trillion yuan year-on-year, and deposits entering stock accounts may be an important factor. 4. Active Capital Market. Since August, the daily trading volume of A-shares has exceeded 2 trillion yuan, with a significant increase in trading volume, while the financing balance of A-shares has also surpassed 2 trillion yuan, indicating that funds in the stock market are more active. The number of new accounts opened on the Shanghai Stock Exchange in July increased by 26% compared to May, but there is still a certain distance from the peak in October last year, and retail investors have not yet entered the market on a large scale. Chart 1: M1 Growth Rate Rebounds Driven by Both Household and Corporate Demand Deposits Source: People's Bank of China, Wind, CICC Research Department Chart 2: Growth Rate of Corporate and Household Demand Deposits is Rebounding Source: People's Bank of China, Wind, CICC Research Department Chart 3: Deposits Show a Trend of Becoming Demand Deposits Source: People's Bank of China, National Bureau of Statistics, Wind, CICC Research Department Chart 4: This Year, the Growth Rate of Fixed-Income Financial Products Has Decreased, While the Growth Rate of Equity Financial Products Has Rebounded Note: The scale of fixed income and equity public funds is based on shares; private equity only includes securities investment funds; trust products include real estate and infrastructure-related fund trusts. Source: People's Bank of China, Securities Association, Trust Association, Fund Association, Puyi Standard, Wind, CICC Research Department Chart 5: Deposit inflows into brokerage margin accounts, non-bank deposit growth rate rises Source: People's Bank of China, Wind, CICC Research Department Chart 6: Capital inflows into the equity market Source: Wind, CICC Research Department Where do the moving deposits come from? In an environment of ample liquidity and weak risk appetite among residents, "excess savings" have formed. We estimate that the scale of "excess savings" formed by residents from 2022 to 2024 will be about 5 trillion yuan (including deposits and wealth management), with the estimation method being the deposits and wealth management exceeding the average savings propensity from 2016 to 2024 considered as "excess savings." The relatively ample liquidity environment and monetary growth rate are the basis for the formation of "excess savings"; otherwise, residents' debt repayment would lead to a simultaneous decrease in deposits and loans, resulting in "balance sheet recession." Unlike Japan in the 1990s, despite certain pressures on the macro economy in recent years, China's M2 and social financing growth rates have remained around 7%-8%, without the occurrence of the "balance sheet recession" in the real sector, bank balance sheet contraction, or M2 growth rate declining to around 0% as seen in Japan at that time. Therefore, before analyzing the movement of deposits, it is necessary to first analyze the main sources of deposit creation, which mainly include the following aspects: Fiscal injection and international balance of payments hedging. In an environment where credit demand from residents and enterprises is relatively weak, the deposit creation effect of credit has weakened. The government actively increases leverage, allowing China's macro leverage ratio to continue rising, and fiscal deposit injection ensures the stability of cash flow in the real economy sector; as exporters settle foreign exchange and foreign capital outflows slow down, the contribution of the international balance of payments to deposit creation is also increasing. We have observed that in the past 12 months, the cumulative scale of banks' foreign exchange settlement and sales for clients turned into a surplus in July 2025, the first time since 2023. As of July 2025, we estimate that among the three main methods of real deposit creation, the contribution of fiscal measures to deposit creation has risen from 25% at the end of 2023 to the current 53%, the contribution of real credit has decreased from 73% in 2023 to the current 41%, and the contribution of the international balance of payments has risen from 1% in 2023 to the current 6% Counter-cyclical credit issuance. Although the credit growth rate has decreased from around 12% at the beginning of 2023 to about 7% currently (as of July 2025), it is still higher than Japan's growth rate of nearly 0% in the 1990s. This is mainly due to the strong counter-cyclical credit issuance by banks, especially the large state-owned banks, whose loan growth has exceeded that of small and medium-sized banks since 2022, becoming a strong support for credit. The credit from state-owned banks is primarily directed towards state-owned enterprises, infrastructure projects, new productive forces, and inclusive policies, which counteract the contraction effect of the real estate sector. Weakening of financial disintermediation. The reduction in deposit rates from 2023 to 2024, the cleanup of manual interest subsidies, and the regulation of interbank deposits have collectively led to deposits flowing into non-bank sectors such as wealth management, fixed-income funds, and insurance, forming a "financial disintermediation" effect (see our June 2024 report "Banks: From 'Excess Savings' to Financial Disintermediation"). We estimate that the drag of financial disintermediation on real deposits in 2024 is about 12 trillion yuan, while this effect will reduce to 8 trillion yuan by July 2025 (calculated on a rolling 12-month basis). The return of deposits from fixed-income non-bank sectors has also become a major contributor to the rebound in deposit growth this year. Chart 7: In an environment of ample liquidity and low risk appetite, residents form "excess savings" Note: "Excess savings" is defined as the new deposits and wealth management scale that exceed the historical average savings tendency (2016-2022). Source: Wind, CICC Research Department Chart 8: China's M2 maintains a high growth rate, fundamentally different from Japan's 1990s "balance sheet recession" Source: Bank of Japan, Federal Reserve, People's Bank of China, Wind, CICC Research Department Chart 9: In terms of deposit creation, fiscal expansion, reduced financial disintermediation, and foreign exchange hedging have offset the decline in credit creation Source: People's Bank of China, Wind, CICC Research Department Chart 10: Weak credit demand from households and enterprises, fiscal leverage increases Source: People's Bank of China, Wind, CICC Research Department Chart 11: Bank customer foreign exchange settlement and sales turned into a surplus Source: State Administration of Foreign Exchange, Wind, CICC Research Department Chart 12: Loan issuance in policy areas offset the contraction of real estate loans Note: The calculations for infrastructure, manufacturing, inclusive, and green loans exclude overlapping parts. Real estate loans include personal mortgage loans and real estate development loans. Source: People's Bank of China, Wind, CICC Research Department Chart 13: The loan growth rate of large state-owned banks exceeds that of small and medium-sized banks, becoming a strong support for credit Source: People's Bank of China, Wind, CICC Research Department Why are deposits relocating? According to the discussion above, although factors such as fiscal policy, international balance of payments, and the return of deposits to the balance sheet have created "ammunition" for market entry in the past two years, signs of deposits moving to the stock market only began to emerge in June-July of this year. We believe the main driving forces behind the relocation of deposits to the stock market are as follows: 1. Increased risk appetite: With the introduction of the "924" stimulus package last year, including support from the central bank and China Investment Corporation for the stock market, debt resolution, and consumption support, a series of policies have improved long-term economic expectations. Breakthroughs in artificial intelligence, new consumption trends, and innovative drugs have also formed new investment narratives, leading to an increase in residents' risk appetite. The wealth management data from the sample banks we monitor also shows that the rise in the stock market since last year has led to a rebound in the growth rate of financial assets for high-net-worth clients, who typically have a higher risk appetite and are the first to enter the market. 2. Easing of "asset scarcity": In 2023-2024, the two main types of risky assets in China, real estate and the stock market, have shown weak returns. In this environment, funds have flowed into bank wealth management, bond funds, insurance products, and residents have repaid high-interest mortgages. As the stock market warms up, the current average return of the A-share market over the past 12 months has reached around 20%. Historically, similar situations occurred at the end of 2009, 2014, and 2019, usually leading to over a year of deposit relocation and stock market uptrends. 3. Weakening dollar and repatriation of overseas funds. Since the beginning of the year, the US dollar index has continued to weaken, mainly due to macroeconomic and monetary policy expectations, changes in the geopolitical landscape, and other factors. Against this backdrop, global funds have also flowed back from the US. According to statistics from the US Treasury, as of May 2025, the scale of US stocks held by accounts in mainland China has decreased by about $60 billion After the return of overseas funds, entering the stock market has become a viable option for obtaining higher returns. 4. Expectations for physical investment are relatively weak. This round of economic stability is mainly driven by state-owned enterprise investment, while private investment demand remains weak. As of July 2025, the cumulative fixed asset investment growth rates for state-owned enterprises and private enterprises are 3.5% and -1.5%, respectively. Against the backdrop of expected improvements in physical investment returns, funds are entering the capital market. Chart 14: Stock market returns rebound to alleviate the "asset shortage" Note: A-share returns use the 12-month cumulative return of the Wind All A Index's 12-month moving average; real estate uses the year-on-year change in second-hand housing prices. Source: Wind, CICC Research Department Chart 15: Benefiting from the recovery of the capital market, the growth rate of financial assets for high-net-worth clients of sample banks rebounds Source: Public announcements of listed companies, CICC Research Department Chart 16: The US dollar index weakens, and funds from mainland China flow out of US stocks Source: U.S. Department of the Treasury, CICC Research Department Chart 17: The growth rate of private fixed asset investment remains low Source: National Bureau of Statistics, CICC Research Department What is the potential for deposit migration? As of July 2025, the scale of household deposits is approximately 160 trillion yuan, while the free-floating market value of A-shares is about 43 trillion yuan, meaning household deposits are roughly four times the free-floating market value of A-shares. It is worth noting that the extent and sustainability of deposit migration to the stock market depend on multiple factors such as macroeconomic expectations, monetary policy, geopolitical issues, and industry prosperity, not solely on liquidity. However, we can estimate the potential and impact of deposit migration to the stock market from the following perspectives: Excess savings perspective: First, we use the excess savings accumulated by residents over the past two years as a measure of potential market entry funds. The savings propensity is the historical new deposit and bank wealth management ratio to disposable income, averaging about 20% from 2016 to 2024. We estimate that the new deposits and bank wealth management scale from 2022 to 2024 is about 50 trillion yuan, of which "excess savings" is about 5 trillion yuan, which may become potential funds for consumption and investment From historical experience, in 2016, during the "asset shortage," residents accumulated excess savings of about 3 trillion yuan. In 2017, excess savings consumption was about 6 trillion yuan, mainly entering the real estate market, stock market, and used for consumption. Deposit maturity perspective: We use the deposit repricing data of listed banks to estimate the scale of long-term fixed-term deposits maturing this year. We estimate that the scale of one-year and above resident fixed-term deposits maturing in 2025 is about 70 trillion yuan, of which the scale of three-year fixed-term deposits maturing is about 7 trillion yuan. This part of the deposits mainly resulted from the capital inflow back to the stock market in the second half of 2022 and the return of wealth management products. After repricing, the interest rate has decreased by about 140 basis points (from 3.0% to 1.6%), and after maturity, residents have the motivation to seek other high-yield assets. Deposit activation perspective: We can also consider the portion of residents' deposits that are activated as potential funds entering the market. Assuming that in a continuously recovering economy and a favorable market environment, the M1 growth rate continues to rise to around 10% this year, if the growth rate of residents' demand deposits rises in line with the M1 growth rate, then in the last four months of this year, the net increase in residents' demand deposits is about 5 trillion yuan. This portion of funds may also enter the stock market or be used for consumption and other investments. Non-bank deposit perspective: Finally, we refer to historical experience to estimate the actual scale of residents' deposits entering the market during historical stock market uptrends. Referring to the two rounds of stock market rises in 2016-2017 and 2020-2021, the net increase in non-bank deposits was 1 trillion yuan and 5 trillion yuan, respectively, with the highest growth rate around 20%, mainly due to deposits flowing into brokerage accounts and public funds. If the growth rate of non-bank deposits rises from the current level of around 15% to 20% this year, the net increase in non-bank deposits will be 1 trillion yuan. Considering the impact of the slowdown in IPO issuance, the elasticity of non-bank deposits in this round may be higher, as equity financing can convert residents' deposits into corporate deposits. For example, in the previous two rounds, the scale of IPOs was 0.4 trillion yuan and 1 trillion yuan, while as of August 15, 2025, the IPO scale is about 60-70 billion yuan. Under the condition of limited IPO supply, the impact of residents' deposits entering the market on the growth rate of non-bank deposits is more pronounced. It is worth noting that the above estimates may be affected by factors such as bond funds and insurance institutions purchasing bank deposits, and are for reference only. In summary, from the perspectives of excess savings, fixed-term deposit maturity, and deposit activation, we estimate that the potential scale of residents' deposits entering the market is about 5-7 trillion yuan, which may be higher than the scale of deposits entering the market during the two rounds of stock market rises in 2016-2017 and 2020-2021. However, the actual market entry situation depends on various factors such as the macro economy, policy expectations, and external environment. For banks, the migration of deposits is beneficial for the expansion of bank interest margins, mainly due to the activation of residents' deposits and the reduction of liability costs. Improved market and economic expectations also help the recovery of credit demand. In addition, we expect that banks' wealth management businesses, such as fund distribution, are also likely to benefit. Against the backdrop of increased attractiveness of the stock market, bonds may be subject to phase disturbances, but under moderately loose monetary policy, the upward space for interest rates is limited, and the revenue growth rate of small and medium-sized banks with a high proportion of bond investment income may decline However, overall, the impact of deposit migration into the market on banks is positive. The fundamentals of banks fundamentally depend on the actual improvement of economic growth. High dividend yields lose relative attractiveness in an active stock market, but still hold appeal for long-term funds such as insurance capital. Chart 18: Recent years have seen an increase in residents' savings tendency Note: "Excess savings" is defined as new deposits and wealth management scales exceeding the historical average savings tendency. Source: Wind, CICC Research Department Chart 19: Estimated cumulative excess savings of residents from 2022 to 2024 is about 5 trillion yuan Note: "Excess savings" is defined as new deposits and wealth management scales exceeding the historical average savings tendency. Source: Wind, CICC Research Department Chart 20: In recent years, the proportion of long-term deposits in time deposits has increased Note: Estimated based on disclosed data from listed banks. Source: Announcements from listed companies, Wind, CICC Research Department Chart 21: Deposit rates for various terms are expected to be reduced by 80-140bp from 2022 to 2025, with a larger reduction for long-term deposits Note: Estimated based on disclosed data from listed banks; assuming a 30bp reduction in deposit rates in 2026. Source: Rong 360, announcements from listed companies, Wind, CICC Research Department Chart 22: Deposit rates for various types have all been reduced Source: Wind, CICC Research Department Chart 23: The scale of brokerage margin accounts is related to non-bank deposits Source: Wind, CICC Research Department Authors of this article: Lin Yingqi, Xu Hongming, Zhou Jiming, Zhang Shuai, Source: CICC Insights, Original title: "CICC: What is the potential for residents' deposit migration?" Risk Warning and Disclaimer The market has risks, and investment requires caution. 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