The Surge in Corporate Deposits Is Not Consumer Potential! Credit Assessment Targets Force Banks to Lend at a Loss on Bills, Party-Owned Enterprises and White Gloves Discount Bills at 0.5% and Re-deposit at 1.4% to Pocket the Spread for Free, Generating 4 Trillion in Deposits a Year, While Small Businesses Borrow at 3%, and the Hole Is Filled by Squeezing Your Deposit Rates — Deposits Are Also Robbing the Poor to Enrich the Rich!

This article provides an in-depth analysis of the real reasons behind the surge in corporate deposits in China, pointing out that this does not represent consumption potential. Instead, it is the result of large enterprises engaging in risk-free arbitrage by exploiting the large interest rate spread between bank bill discounting and deposits. Through detailed data calculations, the article reveals the mechanisms of bill financing, the suspension of interest subsidies, bank credit assessment indicators for public accounts, and the practice of lowering interest rates for ordinary residents' deposits to fill the gaps. It points out that this process is essentially a reverse transfer of wealth from depositors to the white gloves of the powerful and state-owned enterprises.

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Observe things as they are and reject fragmented cognition. Recently, I have seen many bearish articles within the Great Firewall analyzing China's consumption potential—oh, those "bearish" kids—and the reason they cite is actually that Chinese corporate deposits are accelerating. As for these people, I don't know whether to call them malicious or stupid. Today, let's talk about where China's corporate deposits actually come from. I will put the conclusion up front: the main contributor to this round of deposit recovery is not the household sector; a large part of it is due to corporations, and it's not because corporations have made money, but because of what? It's because a group of large enterprises with credit lines and bill-issuing qualifications have obtained arbitrage space from banks ranging from 30 basis points to 110 basis points. Based on my calculations, the amount of deposits derived in this way is between 2.8 trillion and 5.5 trillion yuan per year. And the new corporate deposits from last year to the third quarter of this year have only been 5.46 trillion yuan. To put it bluntly.

Half to all of the recovery in corporate deposits can be explained by this set of arbitrage. Let's take a look at how this micro-financial "empty profit" is made! To explain this deposit mechanism clearly, we must first explain what a bill is. If a company wants to pay a supplier and doesn't have cash on hand, what can it do? It can go to a bank and open a bank acceptance bill. What does the bank stamp and promise? The bank will stamp and promise to pay upon presentation of the bill after six months, and the supplier holding this bill is equivalent to holding an IOU from the bank. If the supplier cannot wait for six months, what will they do? They will take the bill to a bank to exchange it for cash, and the bank will deduct some interest and give you the money; this is called discounting. When a bank receives a bill and sells it to another bank, this is called re-discounting. State-owned bank bills are acceptance bills from large state-owned banks and joint-stock banks, and the re-discount rate is the discount price in this market. This price was at the morning session on July 30 last year.

The one-month rate fell to 0.01%, the six-month rate fell to 0.2%, and the six-month rate at the close of that day fell to 0.41%. By the end of July last year, the re-discount rate for one-month state-owned bank bills hit zero for the first time. By April 28 of this year, the one-month discount rate was stuck near 0.01%, and the six-month rate was stuck in the 0.53% range. On July 15 of this year, the transaction prices for various maturities were pressed into the 0.43% to 0.46% range. Oh right, in the past, at the end of quarters and years, the interest rates on these bills also flashed to zero. So what is it now? Starting in July this year, several large banks have taken 0.5% of the six-month discount rate as the floor price for collecting bills; they won't collect them below this price, which is equivalent to cooperating with the central bank to control this interest rate curve, keeping the bill price—this discount rate—firmly pegged at 0.5%. The end of the third quarter this year just finished its volume rush.

When the discount rates for various maturities just rebounded slightly above 0.5%, by October 15th, the discount rates for bank acceptance bills maturing from November to April of next year were all quoted at exactly 0.5%. If a company takes a bill worth over one million to a bank for direct discounting, the annualized rate is only about 0.6%. In other words, the discount rate for bank acceptances has either hit zero or stuck to the floor of 0.5% since July of last year; this has become the new normal. Moreover, for more than 60% of the time, the coupon rate for six-month bills has been below 1%. So, what are the deposit rates at the same time? The average interest rate for one-year large-denomination certificates of deposit (CDs) at national banks in July this year was only 1.35%. The one-year interbank CD rate—that is, the cost for banks to borrow from each other—was 1.5% in September this year. Just think about it: when a company discounts a bill, it is essentially borrowing money from a bank, and the interest rate is only 0.45%, while the bank's own borrowing cost is 1.5%. This is a complete inversion of costs.

Because after the company deposits this money at a 1.4% interest rate, it is essentially pocketing the spread for free. There is a stable basis spread of 80 to 120 basis points between these two; one basis point is 0.01%, and 100 basis points equal 1%. Furthermore, this inversion did not just start last year; it actually began after April 2024. At that time, the listed interest rate for corporate deposits offered by large banks to large enterprises was only slightly above 1%, but privately, banks would provide manual interest subsidies, bringing the interest rate close to 3%. Kaiyuan Securities once calculated a figure: the amount of deposits in listed banks involving these subsidies was approximately 20 trillion yuan. Then, after April 2024, regulators directly ordered a halt to this manual interest subsidy process. In that very month, the demand deposits of the four major banks dropped from 14.03 trillion to 12.43 trillion within a month, but the unit structural deposits of the four major banks rose from 643.4 billion at the end of March 2024 to 893.3 billion by the end of August that year. In other words, the money did not leave; it just shifted from subsidized demand deposits to structural deposits. The bill discount rate also returned to zero, meaning that the interest spread that was cut when the subsidies were stopped was brought back. Therefore, the spread did not disappear; it just shifted from illegal deposit subsidies to compliant zero-interest discounting on the bill side, thus restoring that portion of the interest spread.

Let us break down this process step by step. For example, if a company has 100 million in deposits, if it deposits them as one-year large-denomination CDs or uses them as margin, it can use this 100 million as collateral to have the bank issue a six-month bank acceptance bill with a face value of 100 million, which can then be issued to upstream suppliers or directly to an affiliated company controlled by itself. The party receiving the bill immediately discounts it. The annualized discount rate for a six-month bill is 0.5%, so for half a year, it is 0.25%. After deducting 250,000 in interest, it can get back 99.75 million in cash. This 99.75 million returns to the company's account, is deposited as a large-denomination CD again, and then used as collateral to issue another bill and discount it again. Every time this cycle runs, the bank's balance sheet will show an additional 100 million in deposits and a 100 million bill loan. How many times can this run in a quarter? From issuing the bill to discounting it and having the money return to the account, it takes only two or three days to complete a cycle. However, what really constrains this scale is not time, but the bank's acceptance quota. If calculated based on full margin, running four cycles in a quarter would turn 100 million in principal into 398 million in deposits on the bank's balance sheet, and running eight cycles would turn it into 791 million. If the bank only requires a 50% margin, then 100 million in deposits could issue 200 million in bills. After three cycles, the deposits would become 1.39 billion, and the multiplier would increase exponentially rather than just doubling per cycle. The limits on this quota are two regulatory lines: the first is that the outstanding acceptance balance cannot exceed 15% of the bank's total assets. The second is that margin deposits cannot exceed 10% of total deposits. This is what puts a cap on the doubling.

Banks always require full margin or equivalent CD collateral for pure arbitrage clients. Why? Because under the full margin model, the bank does not have to bear any credit risk, and the scale of both deposits and loans can be solidly increased. What does the company earn in the middle? The bank gives an annualized rate of 1.4% for large-denomination CDs, the discount deducts an annualized 0.5%, and the bank charges a 0.05% acceptance fee. At this point, the company can net about 85 basis points through risk-free arbitrage without producing anything. Just look at this year's interim reports: CATL's interest income for the first half of the year was 4.89 billion, while interest expenses were only 1.39 billion. However, notes payable ballooned to 152.98 billion, while short-term borrowings were only 20.89 billion. That is the structure. Take Gree Electric as another example: its monetary funds total 128.25 billion, of which 92.5 billion is margin and pledged CDs, accounting for 72%. The notes payable account does not accrue interest, and the company issuing the bill only needs to pay once.

fees, while the margin deposits and the interest on certificates of deposit all go into the interest income item of financial expenses. So you will see a type of company where monetary funds and notes payable expand together, but interest expense remains completely motionless. This is a typical accounting feature of having both high values. Some friends might be puzzled: the bank is not a fool. If you issue a bill at zero point four five percent and the capital cost is an arbitrage space of one point five percent, won't you lose one million for every hundred million you issue? Why would banks still issue such loans? Because bills are the only thing that can issue hundreds of billions in a single day, count as loans on the balance sheet, have a risk weight of only twenty-five percent, and can be sold at any time. Now, among all the Chinese government yamen—anyway, in my mind, the banks of the Chinese Communist Party are already yamen; they are definitely no longer purely financial institutions. Whether you can withdraw money or not is up to these Chinese banks. Therefore, it can no longer be said that China's current banks are still purely.

Enterprises. Moreover, banks should be considered the yamen under the greatest pressure, because the performance evaluations hanging over banks are the easiest to quantify. Indicators such as credit growth rates, as well as growth rate targets for micro loans and manufacturing medium- and long-term loans, all require handing in homework. By the end of September this year, the total RMB loan balance was two hundred and eighty-three point four four trillion, with a year-on-year growth of only four point eight percent. Enterprises simply do not have any real borrowing demand. What should you do if you cannot hand in your homework? Then bills become the only tool to fill this scale gap. The market structure on September fifteenth this year particularly illustrates this problem. The major banks compressed their internal cost of collecting bills to zero point four five percent, which means that the head offices of the major banks told these branches to collect bills at a capital cost of zero point four five percent to snatch them up, while the comprehensive capital cost of small and medium-sized banks was between zero point four percent and zero point five percent. Small and medium-sized banks would lose one point for every bill they issued, so they just did.

So they directly sold the bills to the major banks. From January to November of last year, the bill financing volume of the seven major banks increased by a full two point two four trillion, but the bill financing of the entire market only increased by four hundred and seventy-five point two billion in the first three quarters of last year. Matching the two numbers, the conclusion is clear. What happened last year? The major banks collected bills from small and medium-sized banks at a loss to fill this scale, so the net increase in the entire market was not particularly large. But this year is different. Bill financing in the entire market reached a full one point two nine trillion in the first eight months of this year, which is two point seven times the increase of the first three quarters of last year. By the end of the first half of this year, the balance of bill financing surged to seventeen point two trillion, accounting to six point one percent of all loans. Let's look at the data from the Shanghai Commercial Paper Exchange: in the first half of this year, bank acceptances issued by enterprises reached as high as twenty-three point one two trillion, and how much was taken for discounting? Eighteen point five nine trillion, which means.

Or rather, the proportion of discounting in acceptances reached eighty point four percent. I also checked the proportion in the 2019 annual report of the Commercial Paper Exchange, which was around sixty-one percent. What does this mean? For bills with genuine trade backgrounds, suppliers would hold them until maturity or endorse them to transfer them to downstream parties. When you issue them and discount them immediately—and discount them at a rate even lower than the deposit rate—that can only be arbitrage. The rise of this proportion from sixty percent to eighty percent is itself very, very solid evidence of the rising proportion of arbitrage. How much deposits did these bills derive? What was the scale? I start counting from excess bills. The proportion of bill financing in all loans from 2019 to 2024, the median of this proportion is roughly around five point three percent, but by the end of August this year, bill financing reached about seventeen.seven trillion, accounting for six point two seven percent of the total loans of two hundred and eighty-two point three five trillion, which is nearly one percentage point higher than the original median. So two hundred and eighty-two.

Trillion multiplied by one percent, the excess amount is roughly between two point seven trillion and two point eight trillion. And at the end of June last year, this excess amount was only about five hundred and fifty billion. If the discounted money returns to deposits, I calculate it on a one-to-one basis, and assuming six to seventy percent belongs to corporate arbitrage, with the rest being major banks collecting real bills to pad their scale and discount. Then the narrow definition of deposits derived from corporate arbitrage is roughly about one point eight trillion. Adding the one trillion that went into structural deposits and pledged certificates of deposit after the suspension of supplemental interest in 2024, the total is about two point eight trillion. Let's cross-check by working backwards from the bank statement items: the margin deposits of the big four banks in November last year were about one point two four trillion, and corporate structural deposits were eight hundred and seventy-seven point five billion, totaling two point one trillion. And the bill financing of the big four banks accounts for about half of the market scale, which means extending it to the entire market and stripping out the part with genuine trade backgrounds, this falls into the range of three to five trillion.

Aside from bills, there are also inclusive micro and small enterprise loans and low-interest manufacturing loans accounting for a little over two percent, which have also actively flowed into deposits. If I conservatively estimate this at three to five percent of the balance, adding another five hundred billion brings it to 1.5 trillion. Combined, the arbitrage-derived deposit volume is between 2.8 trillion and 5.5 trillion, with a neutral value of around 4 trillion. What kind of concept is this 4 trillion? Last year, the increase in corporate deposits was only 2.3 trillion. In the first three quarters of this year, it suddenly increased by 3.16 trillion, totaling 5.46 trillion. The narrow-caliber 2.8 trillion can explain half of this deposit increment, while the neutral value of 4 trillion can explain more than seventy percent. Moreover, looking at the financing structure, in the first three quarters of this year, corporate deposits increased by 1.63 trillion more year-on-year, while bill financing increased by 1.29 trillion in the first eight months alone—the timing matches completely, and the volume matches as well. So everyone should have a clear idea of how corporate deposits rebounded, right? Let's look at money supply again: M1 is cash plus demand deposits, while M2 is M1 plus time deposits and various quasi-money arbitrage-derived deposits, all sitting in margin accounts, time deposits, and structured deposits, with not a single penny showing up in M1.

Thus, the annual increment of deposits derived from excess bills is equivalent to lowering the M1 growth rate by 1.6 percentage points, and it will raise the M2 growth rate by 0.6 percentage points. Among the 4 percentage point scissors gap between M1 and M2 this year, I estimate that 1.5 to 2 percentage points were contributed by this process. There is also a more detailed question: how much more deposit does the market derive for every basis point wider the interest rate spread is? We can take the difference between two time periods. In the first three quarters of last year, the average arbitrage basis spread was about 20 basis points, and the annualized increment of bill financing reached 0.63 trillion. In the first eight months of this year, the average basis spread was about 65 basis points, and the annualized increment was pushed to 1.94 trillion. That means with the basis spread widening by 45 basis points, the annualized increment increased by 1.31 trillion. Dividing 1.31 trillion by 45 means each basis point corresponds to 29.1 billion. Applying a 60% discount to account for corporate-end arbitrage, each basis point amounts to around 17 billion. This means that for every basis point wider the rate inversion is, maintained for a year, the market on average will derive about 17 billion more in deposits.

However, this portion consists of arbitrage deposits, and this relationship is not a straight line, meaning it is not linear. As long as the basis spread is below 20 basis points, handling fees and operating costs eat up the profits, and nobody does it at that point. When the basis spread exceeds 80 basis points, the acceptance quota ceiling is also hit. Therefore, the range between 20 and 80 basis points is the steepest section. After discussing the scale, let's look at what this thing did to the economy! In the first eight months of this year, corporate loans increased by 11.26 trillion, but fixed asset investment over the same period fell by 7.2 percent year-on-year—actually 10 percent. I've already mentioned this number to you: private investment also fell by 10.1 percent, while the Consumer Price Index in August rose by only 0.8 percent year-on-year. Enterprises borrowed 11 trillion, but investment is experiencing negative growth; this is what the current mechanism is doing. Not only that, but I also screened A-share listed companies from the 2026 semi-annual reports that had bills payable exceeding 20 billion, totaling 29 companies. Among them, very interestingly, those controlled by Party capital accounted for 66 percent. Let's add two restrictive conditions: first, whether the money on the books is enough to pay off short-term borrowings and issued bills in one go. What does this prove? It proves that these enterprises have no loan demand at all! Second, deposit interest earned exceeds loan interest paid, and most of this money on the books is not fluid cash that can be spent at any time, but rather margins or certificates of deposit locked up in banks. There are seven companies that fully meet these criteria: CATL, Gree Electric Appliances, FAW Jiefang, Changan Automobile, Weichai Power, China Metallurgical, and Seres.

Taking the logarithm of the total assets of this group of companies to perform a normal fit, the neutral value falls between 300 billion and 400 billion. Thus, the total assets covered by one standard deviation represent an enterprise scale of 120 billion to 1 trillion, which is three to four orders of magnitude larger than the average assets of China's designated-size industrial enterprises at the 200 million yuan level. Why can't micro and small enterprises get in at all? Because this process requires three things. First, bank credit limits determine how many bills you can issue. Second, your upstream and downstream trade contracts and invoices determine whether each bill has a compliant background. Third, your margin or certificates of deposit determines the principal for your turnover. These three things happen to be what small and micro enterprises lack the most. And among those who entered the arbitrage, most are still Party-owned enterprises; even the private enterprises are just white gloves that look like private enterprises. Who are they? Companies like CATL, Midea, Great Wall Motor, Seres, Great Wall Seres, and CATL—these three are 100% white gloves, specializing in taking arbitrage money to figure out how to smash a brake pedal to pieces with a single kick, right?

Looking at small and micro enterprises, the picture is quite different. Since the beginning of this year, the weighted average interest rate for newly issued corporate loans has been 3.04%, and the actual interest rate that small and micro enterprises get is often even higher. "White-glove" enterprises, however, obtain 0.5% discount rates and 1.4% deposit rates from the same banks. The same banking system enforces two different price sets for these two types of enterprises, and this arbitrage causes banks to lose 50 to 100 billion yuan annually. The banks' balance sheets must be balanced; the asset side uses 2.7 trillion yuan in excess bills issued at 0.5%, while the liability side uses 4 trillion yuan in arbitrage deposits accepted at 1.4%. This hole in the bank's statement will not disappear. So, what happens if it doesn't disappear? It has to be filled by finding another item on the income statement. The only thing banks can move is the liability side, which is the deposits of residents who have no bargaining power. From September 15, 2022, to May 20 of last year, the listed interest rates of major state-owned banks were adjusted seven times. One-year fixed deposits dropped from 1.75% to 0.95%, a cumulative decrease of 80 basis points; three-year deposits dropped from 2.75% to 1.25%, a cumulative decrease of 150 basis points; and demand deposits dropped from 0.3% to 0.05%. In this year's interim reports, the interest payment rate for personal fixed deposits at the Industrial and Commercial Bank of China (ICBC) dropped from 2.04% to 1.69%, and the average interest payment rate for deposits at the Agricultural Bank of China dropped from 1.42% to 1.13%, both falling by around 30 basis points within a year. As of the end of September this year, national household deposits were approximately 175 trillion yuan. 175 trillion multiplied by 30 basis points means residents received about 525 billion yuan less in interest this year. If compared to the interest rate structure before September 2022, the cumulative weighted return on resident deposits should have dropped by 90 to 110 basis points. 175 trillion multiplied by 1% equals 1.5 trillion to 2 trillion yuan per year.

Now let's go back to the calculation: for every 100 billion yuan lost in corporate arbitrage by banks, how much must resident deposit interest rates be suppressed to fill this hole? That would be 100 billion divided by 175 trillion, which is 5.7 basis points. Therefore, the CCP is not only killing the poor to help the rich in social security, but also in deposits. However, the actual cost of resident deposits from last year to this year has been suppressed by more than 30 basis points, which is 5 to 10 times the size of that arbitrage hole. So what is the extra part filling? It is filling the gap in the net interest margin during the entire interest rate cut cycle. The one-year Loan Prime Rate (LPR) dropped from 3.7% in 2022 to 3% in May last year. For 282 trillion yuan in loans, the annual interest savings are approximately 2.5 trillion yuan. In short, the 1.5 trillion to 2 trillion yuan in interest that all savers lost in a year was mostly saved and given to borrowing enterprises and local government platforms. But the enterprises that still have the heart to borrow and can actually get money now are either those reckless enterprises or these "white-glove" ones. You see, the big enterprises playing arbitrage also get hundreds of billions in subsidies for free, plus the fact that others simply cannot get the qualification for these low-interest loans.

Let's look at prices. In the first eight months of this year, the CCP claimed that prices rose by an average of 0.9%. Your demand deposit interest rate is only 0.05%, or 0.0005. This means that if you put money in a demand deposit, the actual annual loss is 0.85%. About one-quarter of the public's deposits are in demand deposits, meaning about 45 trillion yuan is just sitting there shrinking. Why are resident deposits becoming increasingly concentrated? Let's look at the data. China Merchants Bank announced at the end of last year that it had 224 million retail customers, but only 5.93 million were "Sunflower" level or above, accounting for 2.65%. However, since the first quarter report of last year, China Merchants Bank stopped disclosing how much money this group has earned. The last time the number leaked was in last year's interim report, showing that the "Sunflower" level and above customers, who make up 2% of the total, held over 80% of retail assets. In this year's interim report, they simply gave a total retail asset figure of 18.44 trillion yuan and stopped disclosing the assets of private banking customers. To put it bluntly, interest rate cuts reduce interest for everyone, but not everyone's money is lying in deposits. Where is most of the ordinary people's money? In demand deposits and one-year fixed deposits. This round of interest rate cuts slashed 80 basis points, and the interest received cannot even beat the 0.9% price increase. This means that for them, their money is shrinking, while the rich have long since diversified their money into three-year large-denomination certificates of deposit, structured deposits, wealth management products, and gold.

The returns on these assets only dropped by twenty or thirty basis points in this round. And what is the result? The result is that with the same interest rate cut, the savings of ordinary people are becoming thinner and thinner, while the assets of the wealthy are snowballing. The total amount of money held by residents is rising on paper, but the bulk of that increase is held by a small minority. Moreover, the wealthy can move their money from savings into wealth management products, funds, or even US dollar assets to capture higher returns. Now, let's look at this comprehensively. So, what is our conclusion? Where exactly do these deposits come from? Since the second half of last year, the growth of deposits in China has effectively created a mechanism where deposits can be generated at will. Therefore, the social financing data is completely untrustworthy, because the credit scale assessment set by the People's Bank of China for banks forces them to push bill rates down to zero. These enterprises with credit lines, invoicing backgrounds, and connections, after obtaining zero-interest money, can turn it into arbitrage deposits just by depositing it. This alone generated 2.8 trillion to 5.5 trillion yuan in deposits in a year, which explains half to all of the new corporate deposits. To this end, banks lose 50 to 100 billion yuan annually, and by leveraging the 1.5 to 2 trillion yuan transfer from household savings, they fill this hole along with the gap created by the entire interest rate cut cycle. And only the white gloves of the Chinese Communist Party (CCP) and state-owned enterprises can do this. Therefore, this same process is both the reason for the failure of monetary policy transmission and a channel for the reverse transfer of wealth from depositors to large enterprises. I can say this: this whole thing is just a facade to maintain the appearance of peace. As long as the credit scale assessment remains in place, the bill rates at the end of each quarter will continue to hit zero, and your deposit interest rates will continue to be pushed down. This is not a matter of any single bank violating regulations; it is a systemic issue where the CCP has turned loan figures into a performance assessment metric. As long as this system remains unchanged, China's current deposit system will continue to be a mechanism for large enterprises to bleed depositors dry, and the worse the economy gets, the more they will extract. This is why I tell everyone that you must stay away from Chinese banks.