Anti-China sentiment in Korea is increasing. We identify the Chinese people with the

Anti-China sentiment in Korea is increasing. We identify the Chinese people with the Chinese government (Communist Party), but in fact, it is right to see them separately.

Most Chinese people are living people who are suffering from retirement preparation, education for their children, and medical expenses, and are not much different from ordinary Koreans. Moreover, China has a poorer social safety net than Korea, so the Chinese are increasingly spending less and increasing their savings.

I looked at Chinese Savings and Yellen’s advice.

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What advice did Yellen give to a Chinese person who saved KRW 2,700,000,000? [China is different]
[Editor’s note] I look at China with an uncomfortable and unfair view.

The People’s Bank of China made headlines in April when it revealed that its savings balance plunged by about 4 trillion yuan. In just a month, savings of 748 trillion won were reduced in Korean money.

Savings are expected to increase again by June due to the large impact of seasonal fluctuations, but “where the money is going and where the hell” has emerged as an important topic in China.

Not only China but also the United States are paying attention to China’s savings. During his visit to China in April, US Treasury Secretary Janet Yellen discussed the issue of overproduction with senior Chinese officials, including Deputy Prime Minister Hu Jie Feng. Secretary Yellen’s mention of the Chinese savings rate received a lot of attention from China as well. Let’s first look at Chinese savings and then look at Yellen’s remarks.

1. Chinese households’ savings worth KRW 2,700 trillion…1.40 million won savings per person

The biggest problem in China’s economy is the lack of aggregate demand due to the slowdown in household consumption. Aggregate demand is the sum of household consumption, corporate investment, government spending, and net exports (aggregate demand = household consumption + corporate investment + government spending + net exports). However, as Chinese households choose to save instead of consumption, aggregate demand does not increase, and money has not flowed to companies and has stayed in the household.

It is surprising to see the growing trend of Chinese household savings. The amount of Chinese household savings more than doubled in just eight years from 59.78 trillion yuan (about 1,180 trillion won) in 2016 to 145.55 trillion yuan (about 2,7200 trillion won) at the end of March 2024.

If 145.55 trillion yuan is divided into 1.4 billion Chinese units, it is 103,964 yuan (about 14.0 million won). In other words, one Chinese person is saving an average of 1.40 million won with our money. In 2016 alone, the growth rate of household savings was only 9.5% and the following year was only 7.7%, but since 2020, the growth rate has increased from 13.9% (2020) to 17.4% (2022) due to the outbreak of COVID-19 and the real estate recession.

2. Household share of savings over eight years is 39.7% → 49%

As of the end of April, China’s total yuan savings balance was 291.59 trillion yuan (about 5,4500 trillion won). The yuan’s savings balance increased by 7.32 trillion yuan (about 1,370 trillion won) from January to April this year, and it became an issue as it decreased by 4 trillion yuan (about 748 trillion won) compared to the end of March (11.24 trillion yuan).

Roughly speaking, household and corporate savings fell by 2 trillion yuan (about 374 trillion won) each, which is expected to increase again by June, as mentioned at the outset.

Changes in the proportion of each economic entity, such as households, businesses, and governments, also have implications. In 2016, the proportion of households, (non-financial) companies, and governments in China’s total yuan savings recorded 39.7%, 33.3%, and 18%, respectively.

However, while the proportion of households is increasing sharply, the proportion of companies and governments has declined. Let’s look at the figures at the end of March this year. At the end of March, households accounted for 49% of the total yuan savings balance of 295.5 trillion yuan (about 5,5260 trillion won), up 9.3 percentage points from 2016. The proportions of companies and governments were 27% and 14%, respectively, down 6.3 percentage points and 4 percentage points from 2016, respectively.

The People’s Bank of China explained in its “First Quarter of 2024 China Monetary Policy Execution Report” that most yuan loans flowed to companies, and it is normal for the money to be converted back into household savings through various expenditures such as wages. However, he added that the problem is that savings remain in the household sector due to sluggish total consumption due to the recent slowdown in household consumption and are not being converted into corporate savings through spending.

3. Why do Chinese households save without spending money?

So why do Chinese households not spend money and keep it in banks? This is because the rate of return on deposits and various assets has changed, affecting Chinese households’ risk preferences and investment activities. In the first quarter of the People’s Bank of Korea’s Urban Household Survey, 23.4% of households responded that they would spend more in the future, the same as the previous quarter, but 61.8%, up 0.7 percentage points from the previous quarter. More investment was 14.9%, down 0.7 percentage points from the previous quarter.

Compared to the first quarter of 2017, the gap is clearer. Over the past seven years, ‘more savings’ increased by 19.5 percentage points to 42.3% → 61.8%, but ‘more investment’ decreased by 19 percentage points to 33.9% → 14.9%. It can be seen that the proportion of ‘more savings’ has increased as ‘more investment’ has decreased.

This means that Chinese households have shifted from investment to savings as the 2020 COVID-19 shock and a series of real estate downturns caused the return of the investment product “Lichai,” which was offering a 6-10% return higher than deposits, to fall and the stock market to remain in control.

When asked about items they are considering spending within the next three months in the survey, education (28.6 percent), health (26.3 percent), travel (25.4 percent), entertainment culture (20.5 percent), consumer durables (17.7 percent), and home purchases (15 percent) were in order. This suggests that education and health (medical) issues are preventing Chinese people from spending.

4. Yellen’s solution

U.S. Treasury Secretary Yellen, who visited China in April, told a news conference at the U.S. Embassy in China that China’s savings rate and consumption growth were cited as a way to prevent overproduction. Yellen said he discussed demand as well as supply side with Chinese officials as a way to prevent overproduction, noting that “China has one of the highest savings rates in the world, with a total savings rate of about 45%