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China’s Savings Conundrum

Forced to stay at home by stringent zero-COVID lockdowns, Chinese stashed $3.9 trillion in bank deposits last year. While many economists are pinning their hopes for a global recovery on a “revenge spending” spree by Chinese consumers, the increase in savings largely reflects economic uncertainty, rather than pent-up demand.

SHANGHAI – Chinese bank deposits increased by CN¥26.3 trillion ($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 CN¥17.8 trillion in 2022, growing by more than CN¥5 trillion in the last two months of the year alone.

To many Western economists and analysts, these so called “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 will likely maintain a higher level of precautionary savings over the long term.

To be sure, the increase in Chinese household savings last year is unusual and reflects 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.