A survey on Shanghai residents' third-quarter savings trends conducted by the Shanghai Branch of the People's Bank of China (PBOC) reveals growing eagerness for an interest rate increase.

Some 93.3 percent of respondents believe the current interest rate is low, a jump of 10.3 percentage points from the third quarter of 2003. Just 6.5 percent feel the rate is moderate, down 10.2 percentage points from the same period last year.

Low-income respondents are less satisfied than their higher-income counterparts with the current rate. Savings deposits make up the bulk of financial assets of low-income investors, while those in higher income brackets have more diversified investments. An increase in the interest rate may lead to a decrease in the rate of return from other forms of assets for high-income residents.

Stock market sluggishness has dampened enthusiasm for investment in securities. The willingness index of survey respondents to invest in treasury bonds, bonds, stocks and funds is only 36 percent, five percentage points lower than in the previous quarter. Investment in stocks and funds makes up only 10 percent of total investment portfolios, 13 percentage points lower than in the second quarter.

Despite their low returns, low-risk savings products are making gains in popularity: treasury bonds were the investment of choice for 22.8 percent of those surveyed. Of the financial assets currently owned by respondents, treasury bonds account for 16.5 percent, up 2.7 percentage points from the previous quarter.

With the investment market remaining in the doldrums, people would rather spend than save. Rising consumer prices and incomes provide additional impetus.

Consumer prices are at their highest point in two years, and public satisfaction with prices has been sliding all year, with 18.8 percent of residents to the third-quarter survey saying they are far too high.

Rumors of a possible interest rate hike have been circulating for some time. A report in the September 9 edition of the Securities Times says that a number of analysts believe that a recent speech by PBOC Governor Zhou Xiaochuan, together with the unusually high rate assigned to a recently issued T-bond and commercial banks' response to that, are strong signs of an impending increase in the rate.

(China.org.cn by Yuan Fang, September 10, 2004)