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China economy
OpinionComment
Prof Zhang Jun
Prof Zhang Jun

Opinion | China’s huge household savings no guarantee of economic recovery via ‘revenge spending’

  • Stuck at home during repeated lockdowns as part of the country’s zero-Covid policy, Chinese households amassed trillions in savings last year
  • Some are pinning hopes of economic recovery on ‘revenge spending’, but those savings could be a sign of uncertainty rather than pent-up demand

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People choose clothes at Joy City shopping centre in Beijing on January 31. There are fears the increase in household savings in China reflects economic uncertainty rather than pent-up demand. Photo: EPA-EFE
Prof Zhang Jun
Chinese bank deposits increased by about 26.3 trillion yuan (US$3.9 trillion) last year, according to recent data from China’s central bank, the People’s Bank of China (PBOC). Spurred by China’s rigid Covid-19 containment strategy, which the government rolled back in December, household savings surged by 17.8 trillion yuan in 2022, growing by more than 5 trillion yuan in the last two months of the year alone.
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To many economists and analysts, these “excess savings” represent pent-up demand that could lead to a wave of “revenge spending” this year and drive the global economic recovery. But while China is expected to experience a recovery in consumption this year, Chinese households are likely to maintain a higher level of precautionary savings over the long term.
To be sure, the increase in Chinese household savings last year was unusual and reflected consumers’ inability to spend as a result of China’s strict zero-Covid lockdowns, which forced millions to remain indoors, sometimes for months at a time. Now that China has abandoned the policy, the floodgates have opened and it stands to reason that much of these forced savings would spill out, lifting consumption higher.

But not all of the excess savings reflect suppressed consumer spending. A very large proportion of the increase in deposits reflects what households choose to save as a precaution.

Chinese households save mainly in the form of housing and financial investment, and last year they delayed home purchases and pulled out of the stock market and other underperforming financial assets in favour of keeping their money in bank deposits.

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According to several estimates, housing purchases declined in 2022, mostly owing to investors’ expectations of a sustained economic downturn. Even if consumer spending could return to normal this year, heightened uncertainty will most likely prevent Chinese families from putting their hard-earned savings into housing or stocks, so bank deposits will remain higher.

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