China's $538 billion deposit exodus charges bonds rally

China's efforts to bolster economic growth by reducing the allure of bank deposits has driven a record exodus from cash, with a big proportion of that going into bonds and wealth management products.

The nation's total deposits slumped by $538 billion, or 1.3%, in April as investors looked for higher returns elsewhere and policymakers cracked down on companies that took advantage of preferential deposit rates to park cash at banks. One-year deposits at China's largest banks pay a record-low of just 1.45%. The rush of funds into higher-yielding assets indicates efforts by Chinese policymakers to boost risk appetite are starting to bear fruit, though the money has yet to translate into a jump in consumer spending or stock investment.

"Factors, including an end of arbitrage borrowings, have vastly driven the reallocation of deposits, and it's expected to continue," said Ming Ming, chief economist at Citic Securities Co. in Beijing. "People are withdrawing their savings to spend and invest, and that's something that policymakers will be glad to see."