Growth in household bank savings, which has been fairly rapid in recent years, has been slowing during the past four months. Outstanding savings deposits rose 14.2 percent year-on-year in the first seven months of this year to 12.1 trillion yuan (US$1. 5 trillion), the slowest growth rate in the past 28 months, the National Bureau of Statistics (NBS) announced on Tuesday.

"If this trend continues, this year will likely end up as a turning point for the 10-year-old high growth of savings deposits," said an article on the NBS website.

A negative real interest rate environment is a key reason for the persistent slowdown in bank savings growth, according to the bureau.

China has implemented eight interest rate cuts since 1996 in an effort to kick-start domestic demand, bringing interest rates down 78.4 percent to historical lows. Real interest rates slid into negative territory in October last year as prices began to climb, prompting inflationary worries and calls for an interest rate rise.

The real one-year deposit rate currently stands at minus 3.7 percent.

Low interest rates, coupled with a rebound in the stock market -- especially in the first four months of this year -- have accelerated the diversion of funds from bank savings.

This year's growing private spending, driven by upgrades to consumer durables like TVs, as well as surging property prices, have contributed to lower savings growth. Increased lending by private companies this year has also had an impact.

Analysts have said that the liquidity difficulties many private firms are experiencing are partly due to the state's efforts to contain loan growth. This has been pushing companies into private lending markets.

Senior government officials expressed concern about the growing diversion from bank savings earlier this year, saying the phenomenon "deserves special attention."

The situation has been one reason for the slowdown in China's monetary growth and a persistent decline in bank reserves, a key barometer for their lending capacity. It may continue to weigh down money and credit growth, according to the NBS.

In an effort to curb rapid growth in fixed investment and lending, the Chinese authorities have implemented a slew of measures this year, such as imposing land controls and requiring banks to set aside more reserves. But the slowdown in loan growth during the past few months was more abrupt than expected, prompting concerns that economic growth may be slowed in an unwanted manner.

To prevent the savings diversion from eroding economic growth, the NBS recommended increasing the issuance of Treasury bonds to help channel funds to where they are needed.

It also said that market-oriented reform of the interest rate regime should be stepped up so that banks can have greater freedom to raise interest rates and keep more funds in accounts.

(China Daily September 1, 2004)