China's consumers aren't buying stuff, but it's not because they're broke

China's household deposits reached a record high of around 147 trillion yuan, or $20.2 trillion, at the end of June.

• Chinese consumers are saving more, impacting luxury brand sales and economic growth.
• Household deposits reached around 147 trillion yuan by June, hitting a record high.
• Beijing has been trying to boost domestic demand, but consumer confidence is very low.

China's once free-spending consumers are holding back, hitting luxury brands particularly hard.

But this doesn't mean people in China don't have money. They just now prefer saving it.

According to official data from the People's Bank of China, household deposits rose to a record — around 147 trillion Chinese yuan, or $20.2 trillion — at the end of June.

In the first half of this year, Chinese households added 9.3 trillion yuan to their deposit accounts.

But the extra money isn't translating into spending, dragging second-quarter growth to 4.7% from a year ago — below analysts' expectations. Retail sales growth also lagged, increasing just 2% in June from a year ago, the slowest in a year and a half.

Earlier this week, luxury houses Hugo Boss, Burberry, Richemont, and Swatch all reported a slump in sales in China that hit earnings.

Beijing is trying to boost demand, but people prefer to save

Data suggests Chinese consumers would rather pay down their loans and move their deposits to wealth management products, said Tommy Xie, head of Greater China research at OCBC Bank, in a Monday note.

In June, household deposits rose 2.14 trillion yuan from May. This increase was about 20% lower than the same period a year ago.

Beijing has been trying to boost economic growth by driving domestic consumption through subsidies and trade-in deals, even for property purchases.

However, success has been limited even though exports are still going strong. giving some support to China's economy.

Total yuan deposits — including household, corporate, and government deposits — totaled about 300 trillion yuan in June — more than double its GDP of 126 trillion yuan.

Due to the lack of a strong social safety net in China, people in the country have an entrenched belief that they must save as a precaution, according to a Tuesday report from US investment bank TD Cowen.

Nearly half of 2,000 Chinese consumers in a recent TD Cowen survey said their savings were higher and that they are now saving more than a year ago.

Chinese consumers flock to gold, spend on experiences

Despite a lack of appetite for luxury fashion, China's consumers have been snapping up gold — a haven asset — this year, sending prices of the precious metal to record highs.

This shows that people are still spending. But they're plunking down cash only on what they want to, amid a crisis of confidence from China's epic property crisis, volatile stock markets, geopolitical headwinds, and demographic challenges.

Chinese consumers also prefer to spend on experiences and overseas now.

About 64% of respondents in TD Cowen's survey said they were planning to spend on travel, and 17% of them were less willing to spend on luxury goods.