As China's benchmark interest rate has fallen, causing deposit interest rates to drop to around 0%, a trend of deposit withdrawals among Chinese investors has been observed. With lower interest income on deposit products, funds have been shifting to financial products such as short-term bond funds, leading to a record high in the management scale of related products. With an additional interest rate cut expected this second half of the year, this trend is likely to continue for the time being.
On the 23rd, Chinese economic media Caijing reported that demand for short-term retail financial products has surged recently among bankers. In fact, according to China International Capital Corporation, the total management scale of China's retail financial products has reached 31.3 trillion yuan (approximately 5,978 trillion won). This represents an increase of 7.35% compared to the previous month and 6.83% compared to the same period last year, reaching an all-time high.
As the Central Bank lowered the loan prime rate (LPR), which serves as the benchmark interest rate, banks with deteriorating profitability have reduced deposit interest rates. As a result, among investors, there is growing popularity for products that provide high liquidity and relatively stable revenue over deposits with low interest rates.
Among these, the increase in short-term products is particularly striking. According to Chinese economic media Zhiwei, as of May 20, more than one-third (38%) of the total funds managed in retail financial products were cash management products that could be redeemed on a daily basis. Products with a maturity of less than one month accounted for 19% of the total and showed the fastest growth. Retail financial products are financial products provided to individuals by financial institutions, including savings and deposits as well as investment products such as funds. Given that savings and deposits have longer maturities and lower interest rates compared to other products, it is analyzed that demand is shifting towards other products aside from savings and deposits.
Xu Hongyan, a researcher at the Bank of Communications, noted, "Short-term financial products offer good liquidity and low risk, aligning with the current market atmosphere that values operational flexibility in fund management," adding, "In a situation where interest rates continue to decline, they can actually serve as a means to reduce losses compared to deposits." A private banker at a bank also told Zhiwei that, "Customers who previously considered deposits the safest and most convenient option are now dissatisfied with interest rates in the 0% range. Interest in short-term products that can be redeemed early has notably increased."
The investment attractiveness of bond-type products is particularly rising. Bonds are drawing the attention of Chinese investors as their prices increase and yields rise as interest rates drop, serving as alternative products to deposits.
Previously, the People's Bank of China announced a 0.1 percentage point reduction in the loan prime rate (LPR) and a 0.5 percentage point reduction in the reserve requirement ratio. Upon the People's Bank lowering the LPR as scheduled on the 20th, China's four major state-owned commercial banks, including the Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of China, announced a one-year time deposit rate of 0.95%. This marks the first time deposit interest rates have dropped to around 0%. If 500,000 yuan (approximately 95.73 million won) is placed in a three-year time deposit, the interest income obtained will decrease by 3,750 yuan (approximately 720,000 won) compared to before.
The People's Bank is expected to further reduce interest rates once more in the second half of the year. Liu Xin, Chief Bond Investment Officer at BlackRock, stated in an interview with Zhiwei, "There is a high possibility that the People's Bank will reduce interest rates by another 0.1 to 0.2 percentage points," adding that "this will provide a favorable environment for the bond market."