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Savings in China pass US$1 trillion

China's household savings surged above US$1 trillion for the first time and consumer prices fell for a fifth month in July, suggesting people are too worried by a cull in state jobs to take advantage of lower prices.

Household savings rose 18.4 percent in July from a year ago to a record 8.3 trillion yuan (US$1 trillion), almost equivalent to Italy's gross domestic product. Consumer prices dropped 0.9 percent from July 2001, accelerating from a 0.8 percent drop in June, the National Bureau of Statistics said.

Consumers in Asia's second-largest economy are tucking more money away as state-owned factories sack workers and the government shifts the cost of education, medical care and retirement to the public. That may slow an economy that expanded 8 percent in the second quarter from a year earlier and prompt the central bank to cut interest rates, economists said.

"Cradle-to-grave expenses are less and less guaranteed by the government," said Li Quan, who helps manage 7.5 billion yuan in assets at Boshi Fund Management Co in Shenzhen. "People are saving for future expenses."

Health care costs rose 7.3 percent in July, while education costs gained 3.7 percent, the consumer prices report showed.

Food prices fell 0.9 percent and clothing prices declined 2.6 percent.

Some of China's 60 million stock investors may pull money out of the market and putting it in the bank, on concern about political instability ahead of a Communist Party leadership change expected later this year, economists said.

The benchmark Shanghai A-Share Index fell 4 percent in July and 7 percent in the second quarter.

"Domestic investors have lost their confidence in the stock market," said Chris Leung, an economist with DBS Vickers Securities in Hong Kong.
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