Chinese retail investors hold 23 trillion dollars in savings, but can only "buy stocks"?

Chinese families are cautiously returning to the stock market, one reason behind this is that there are almost no other investment options worth buying. Driven by the AI boom and Trump's softened attitude towards China, the Shanghai-Shenzhen 300 Index has risen more than 25% since its low in April. However, other asset classes—from financial products to money market funds—are still mired in years of stagnation, leaving the 23 trillion USD savings in the hands of Chinese retail investors with nowhere to go.

“There are no choices other than stocks” becomes the new reality

This has made an old bull market slogan popular again: “There are no options other than stocks.” The market widely expects that Chinese retail investors will invest a portion of their $23 trillion in savings into the stock market, which is quite attractive to global institutions that have shown signs of returning after years of watching.

“The pressure on savings is easing,” said William Bratton, head of cash equity research for Asia-Pacific at BNP Paribas. The large pool of savings is one of the reasons his team is optimistic about the Chinese stock market in the long term.

So far, the main force behind this round of pump is not retail investors, but local institutions and foreign capital inflow, as pointed out by Goldman Sachs. However, retail investors are the core of the bull market logic. JPMorgan predicts that by the end of 2026, about 350 billion dollars in savings will flow into the stock market.

Cash Deposit: The Once Favorite's Aura Has Faded

(Source: Bloomberg)

Cash remains the favorite of Chinese savers, but its luster is fading. The five-year fixed deposit interest rate of the four major state-owned banks is only about 1.3%, compared to around 2.75% in 2020. The annual interest rate for current deposits is only 0.05%.

The returns on money market funds have also significantly shrunk. Tianhong Yu'e Bao, which manages approximately $110 billion in assets, has an annualized yield of only 1.1%, which is less than half of the level at the beginning of 2024. This means that depositing funds in banks or money market funds may result in a real yield that is even negative.

Why Are Other Investment Options No Longer Attractive?

1. Bond Market: Historical Low Yields

(Source: Bloomberg)

Bond performance has also been poor. The Bloomberg Total Return Index shows that, so far this year, the number of monthly losses for Chinese government bonds has exceeded the number of gains.

Despite falling bond prices leading to rising yields, the government and financial institutions have resumed collecting interest taxes, further weakening investor interest. Even so, current yields remain historically unattractive. The yield on 10-year government bonds is about 1.80%, well below the five-year average of 2.58%.

2. Real Estate: Once the King, Now in Decline

(Source: Bloomberg)

Real estate has long been the preferred choice for Chinese investors seeking returns, but after four years of decline, signs of buyers returning to the market remain scarce.

Many families already own more than one set of housing, and potential demand is limited. China has repeatedly emphasized that “houses are for living in, not for speculation,” which has also become a warning for investors. Developers have damaged confidence due to their difficulty in delivering sold homes.

According to data from China International Capital Corporation, the proportion of real estate in household wealth has decreased from 74% in 2021 to the current 58%. During the same period, the proportion of high-risk financial assets such as stocks has risen to 15%, an increase of 6 percentage points.

3. Financial Products and Insurance: Yield Continues to Decline

Wealth management products have long been popular among investors, but data from the rating agency PYStandard shows that in recent quarters, the annualized returns of pure fixed-income and mixed-strategy wealth management products have fallen below 3%. This marks a decline in wealth management yields for more than two consecutive years.

The yield of life insurance products has also been declining. Ping An Insurance disclosed that the annualized yield of some of its universal life insurance policies has dropped from 4.3% before the pandemic to 2.5%.

4. Overseas Investment: Visible but Inaccessible

If the stock market is the only option, then what about overseas stock markets? In recent years, Chinese investors have also invested in overseas markets through channels, such as betting on the “Seven Giants” of the US stock market.

However, capital controls are a major obstacle. Local investors are not allowed to exchange more than $50,000 in foreign currency each year, and the funds providing investment in overseas markets are also subject to quota restrictions. In addition, overseas investments are subject to a 20% income tax.

Therefore, Chinese investors face a dilemma: although there are many domestic investment options, the returns are sluggish, while overseas assets are attractive but difficult to acquire. Analysts believe that they are likely to choose a compromise — continuing to increase their bets on the local stock market.

This trend may bring sustained capital support to the Chinese stock market, but it also increases the risk of market volatility, as the lack of diversified investment channels means that capital may quickly flow in or out of the stock market when market sentiment changes.