Analysis: Investment Environment Critical to Diverting Savings

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Last updated at: (Beijing Time) Saturday, July 13, 2002

Analysis: Investment Environment Critical to Diverting Savings

China's central bank announced Thursday that by the end of June, savings deposits had risen to 8.2 trillion yuan (1.13 trillion U.S. dollars), up 17.4 percent from the same period last year.

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China's central bank announced Thursday that by the end of June, savings deposits had risen to 8.2 trillion yuan (1.13 trillion U.S. dollars), up 17.4 percent from the same period last year.

In February this year, the central bank lowered interest rates for the eighth time in succession, hoping to drive some of the huge amount of savings out of banks into the capital and consumption markets to support economic development.

However, the increase in savings has in fact accelerated, with a net increase of up to 1.2 trillion yuan (165 billion dollars) over the past 10 months. To improve capital efficiency and better serve economic growth, measures must be adopted to appropriately channel savings to other investment fields.

Over the past 20-odd years, the average annual growth of China's gross domestic product has been nine percent and income levels have continuously risen, which makes possible the high-speed savings increase. However, the inadequate social investment environment is also a major factor leading to unusual savings growth.

In addition to savings, individuals can also invest in stocks, funds, bonds, insurance and other areas. But China's capital market is still developing and low transparency has discouraged investors from putting money in the stock market; the marketing and compensation services of the insurance industry fall behind investors' expectations; and the bond market is comparatively small and lacks sufficient range.

Individual financial assets are an important resource for national economic growth. At this critical period of China's economic transition, they are closely related to prices, state-owned enterprise reforms, financing of medium-sized and small enterprises, social security and many other areas. Improving the investment environment is conducive to diverting savings and promoting the development of related areas.

Statistics show that over the past 10 years, corporate indirect financing from financial institutions exceeded eight trillion yuan(967 billion dollars), while direct financing from the capital market was less than 800 billion yuan (97 billion dollars), the difference is extremely big compared with developed countries whose direct and indirect financing are equally important.

The Chinese government and financial supervision departments have been adopting measures to guide social investment. Premier Zhu Rongji encouraged individual investment in his government report earlier this year; central bank Governor Dai Xianglong also encouraged more savings to work in the capital market.

The China Securities Regulatory Commission (CSRC) has required listed companies to improve information transparency, law-breakingpractices in the market are being severely punished, and over-the-counter trading of treasury bonds has been launched.

The insurance industry, which faces serious challenges from incoming foreign counterparts, is also undergoing profound reforms,and new marketing methods and new products introduced to cater to investors' demands.

Experts held that with the improvement of the overall investment environment, people will be happy to make diversified investments.

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