(Kitco News) Chinese consumers are saving more and hoarding cash instead of spending it. This contradicts Beijing's efforts to lift COVID-19 restrictions to boost economic activity.
According to government data, Chinese citizens borrowed $564 billion in new loans last year. This is down more than half from the previous year and the lowest level since 2014. The drop in borrowing was attributed to falling home sales and fewer new mortgages. Spending on everyday items was also down last year.
Instead, Chinese consumers saved, with new household deposits hitting a record high of more than $2.6 trillion in 2022, The Wall Street Journal quoted Chinese government data.
With the Chinese government lifting its COVID-zero regulations late last year, activity in the retail and travel sectors started to improve. And the Chinese Lunar New Year celebrations at the beginning of 2023 also helped. But it will take time for the rebound to kick in.
Chinese citizens are sitting on the money that is "waiting to be spent," Hong Kong Exchanges and Clearing Ltd.'s CEO Nicolas Aguzin said at a panel during the World Economic Forum in Davos last month.
One of the reasons why people are sitting on cash could be the uncertainty they feel about what lies ahead. According to a survey from the People's Bank of China published at the end of last year, half of those polled felt unsure about their careers, and nearly a quarter of respondents said their income dropped. More than 60% also said they would prefer to save instead of spend or invest. The survey polled 20,000 depositors in 50 different cities in China.
This data comes as China has stepped up its gold purchases at the official-sector level and retail demand level.
The People's Bank of China bought gold for three months in a row, purchasing 15 tonnes in January, 30 tonnes in December, and 32 tonnes in November. China's gold reserves now total 2,025 tonnes.
On top of that, Chinese gold premiums were significantly elevated recently, which pointed to robust demand from the retail sector, said TD Securities senior commodity strategist Daniel Ghali in a report last month.
"Chinese demand at a massive scale is likely the main culprit behind the strong price action that has defied analyst and trader views over past months. This helps to explain the disconnect between gold and real rates, in favor of a tighter relationship with currencies," Ghali noted.
But he also warned Wednesday that interest in gold might be now waning, at least from the retail side. "Shanghai gold trader liquidations continue to suggest that behemoth Chinese buying activity over the last few months was likely exacerbated by Lunar New Year celebrations amid China's reopening, but is now on track to normalize," Ghali added. "Wth positioning now slightly below average, the pace of liquidations from this cohort could slow."
Previously, TD Securities pointed to China as driving the gold price at the start of the year. "Armed with a flows-based approach, we present strong evidence that behemoth Chinese and official sector purchases may have single-handedly catalyzed a $150/oz mispricing in gold markets," Ghali said.
