As Economic Slowdown Emerges... China's Six Major State-Owned Banks Lower Deposit Interest Rates

On the 8th, major Chinese state-owned banks consecutively lowered the announced interest rates on yuan deposits. This move is analyzed as an effort to stimulate the economy in response to delays in China's consumption recovery.

According to local media such as China Securities Journal on the 8th, six major Chinese state-owned banks including Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank of China, Postal Savings Bank of China, and Bank of Communications reported that they would reduce the interest rates on demand deposits such as ordinary deposits and current deposits by 0.05 percentage points, from 0.25% to 0.2%.

For fixed deposits with a 2-year maturity, the interest rate was lowered from 2.15% to 2.05%, and for 3-year fixed deposits, from 2.6% to 2.45%. The 5-year fixed deposit rate was adjusted downward from 2.65% to 2.5%.

[Image source=Yonhap News]

According to China Business News, the trend of interest rate cuts in Chinese banks began around June 2021, when the spread of COVID-19 was at its peak. Before that, the highest interest rate for large 3-year deposits was close to 4%, and general fixed deposit rates were around 3.3% to 3.5%, the newspaper reported. It estimated that comparing the current rates after this adjustment with those before June 2021, depositing 1 million yuan (approximately 182.52 million KRW) would result in about 20,000 yuan less interest over three years.

China Securities Journal evaluated that "after some state-owned banks first lowered their announced deposit rates last September, commercial banks followed suit," and citing analysis from China Securities Investment Securities, suggested that this could prompt the central bank, the People's Bank of China, to further cut the Loan Prime Rate (LPR).

The People's Bank of China is reported to have instructed commercial banks last week to reduce short-term fixed deposit rates by 0.05 percentage points and medium- to long-term rates for 3 to 5 years by at least 0.1 percentage points. Major foreign media forecast that the People's Bank of China could lower the 1-year LPR as early as this month. Gary Ng, Chief Economist at French investment bank Natixis, evaluated, "The reduction in deposit rates will channel savings into consumption and investment, ease pressure on banks' net interest margins, and open the door for additional monetary stimulus."

The market views this move as reflecting internal concerns about China's economic slowdown. Major foreign media diagnosed that "China's economic recovery has been hit by a slump in the real estate market, weak industrial production, and sluggish consumption," and that "the post-pandemic rebound has fallen short of expectations."

This content was produced with the assistance of AI translation services.