Chinese Banks Step Up Dollar Deposit Competition as Some Short-Term Rates Hit 4%

Competition for U.S. dollar deposits is intensifying at banks in China, with several foreign banks and some city commercial banks lifting promotional rates to attract foreign-currency funding, according to Jiemian News. Hang Seng Bank (China) launched a limited-time dollar time-deposit offer in July, with the highest annualized rate at 4% for one-month deposits, while three-month and six-month rates were 3.65%; the minimum deposit was 20,000 yuan. East Asia Bank said new customers depositing between $10,000 and under $50,000 could get promotional rates of 3.4% for three months, 3.35% for six months and 3.2% for one year from July 15 to July 31, while deposits of $50,000 or more qualified for 3.4%, 3.55% and 3.25% respectively. Nanjing Bank is offering a one-year rate of 3.42% on a $200,000 large deposit, and major state-owned banks are mostly keeping one-year dollar deposit rates around 2.8%.

DONG Ximiu, chief economist at Zhaolian, said the higher rates reflect both banks' funding needs and expectations for U.S. Federal Reserve policy. Industry participants said dollar deposits are becoming more attractive because of banks' cross-border business, overseas investment and dollar lending needs, but they also warned retail investors to watch exchange-rate risk and possible rate cuts by the Fed. According to the article, the yuan has strengthened more than 3% against the dollar so far this year and more than 5% over the past year, which could erase interest income for investors who convert back into yuan.