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The red-hot stock market has grown by more than 50 percent this year after doubling last year. Reduced bank deposits suggest a large amount of money is being invested in the capital market, according to the central bank. More than 70 billion yuan was transferred from savings accounts in Shanghai to stock trading accounts in the first four months of this year, the Shanghai branch of the People's Bank of China estimated Saturday.

The growth rate of Chinese household deposits is lower than that of non-banking institutions. Investors are rushing to withdraw money from bank savings accounts and pump them into the stock market. China's increment of renminbi deposits hit 444 billion yuan at the end of April, down by 13.3 billion yuan year on year. In the same month, renminbi savings balance with Chinese banking institutions was 35.9 trillion yuan, up 15.7 percent from April 2006. During the first four months of 2007, renminbi deposits increased 2.3 trillion yuan, a decrease of 73.7 billion yuan in growth year on year. The increment of deposits with non-banking institutions was 280.7 billion yuan, up 88.7 billion yuan year on year.

China's inflation eased in April, but barely meeting the government's target of three percent, increasing the pressure on the central bank to raise interest rates. The Consumer Price Index, a barometer of inflation, rose three percent year-on-year, down from 3.3 percent in March, the National Bureau of Statistics said on Monday.

The figures upped the pressure on the People's Bank of China to hike interest rates as the country's real interest rate has been kept in negative territory. China's benchmark one-year deposit rate stands at 2.79 percent and interest income is subject to a 20 percent tax.

In April alone, the Shanghai Stock Exchange and the Shenzhen Stock Exchange had 4.79 million new A-share trading accounts, exceeding the total number of new stock accounts opened in the past two years. This brought the total number of stock trading accounts on the two bourses to 993.95 million.

According to a monthly report jointly produced by Shanghai Securities Journal and Shenyin Wanguo Securities, a record 250 billion yuan was ready for stock trading in April, bringing the total on the A-share market to 980 billion yuan.

The continuous bank savings diverted to stocks will not have a big compact on banks in a short term, for China's money supply is sufficient at the time, said analysts. However, if household deposits as a stable loan source continue to flow out, it will affect banks' operation stability. The ratio of loan to deposit with Chinese banks is 68 percent, much lower than the upper limit of 75 percent.

The investment spree has aroused concern from the industry watchdog. In a notice released on Friday, the China Securities Regulatory Commission urged stock exchanges, securities dealers and related authorities to educate investors about the risks of stock market investment. These institutions must make investors understand that stock markets are risky and they should be cautious in entering the market, especially those who use all their savings or mortgage their apartments for loans to invest in stocks, the notice said.

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