Yuan savings at Chinese banks in Shanghai dropped last year despite a recovery in the fourth quarter as people moved funds to the stock market, the central bank said yesterday.

Whole-year yuan savings dropped 2.94 billion yuan (US$404.5 million) last year from 2006's yuan savings growth of 106.52 billion yuan, the Shanghai headquarters of the People's Bank of China said yesterday.

"Yuan savings at Chinese banks have fluctuated strongly in line with the performance of the stock market," it said.

The benchmark Shanghai Composite Index more than doubled in the first 10 months of last year to crack the 6,000 level from 2,728 at the beginning of the year.

The bull stock market and the temptation of huge profits prompted depositors to shift their savings to try their luck in the stock market. Also a real negative interest rate did not help people to keep their bank savings.

When the index started to correct from October, some capital returned to the savings accounts on profit-taking and concerns of a possible crash.

Other drivers causing funds to flow back to banks include a correction in the property market, less frequent issues of new shares and the faster pace of interest rate rises.

About 56.16 billion yuan were placed at banks as savings in December which saw a high growth for a single month in nine years.

However, foreign currency deposits at Chinese banks dropped due to the quicker appreciation of the yuan.

Foreign exchange deposits at Chinese banks fell US$2.41 billion last year after a rise of US$3.4 billion in 2006.

Yuan deposits at overseas banks in Shanghai soared last year as several of them started to be locally incorporated in China from April. The local incorporation status allows them to tap unlimited retail yuan market.

Newly added yuan deposits at overseas banks topped 55.09 billion yuan last year in Shanghai, up 27.35 billion yuan from a year ago.

Overseas banks also took a bigger share of the yuan lending market last year.

(Shanghai Daily January 10, 2008)