Can China’s $10 trillion increase in savings fuel a real recovery this time?

China has seen several market rallies over the past few years, but each one faded before turning into a lasting recovery. This time, however, signs of a more sustainable turnaround are emerging.

A key factor is the $10 trillion net increase in household savings since 2020. If confidence returns, this rising pool of savings could drive consumer spending, hiring, and investment—potentially setting the stage for a real recovery

Andy Rothman, Founder and CEO of Sinology, believes this shift is part of a broader course correction rather than a temporary boost. “Things have been getting worse in the Chinese economy, and Xi Jinping is acknowledging that,” he said. “What we are seeing now is yet another step in a process of course correction, towards pragmatism that’s really been underway since September of last year or so.”

He pointed to Xi’s February 17 meeting with tech entrepreneurs, saying it was part of this ongoing shift and not just a one-off event.

Investor sentiment is also shifting. Morgan Stanley recently lifted its bearish stance on China, citing structural improvements in the economy. However, Rothman noted that foreign investors are showing more confidence than domestic ones.

“Right now, you’ve got a combination of tech and, surprisingly, foreign investors getting more confident than Chinese domestic investors,” he said. He expects opportunities to expand beyond tech, particularly if businesses feel the regulatory environment is stabilising.

Despite concerns about weak consumer demand, China’s record-high household savings could support a surge in spending once confidence improves.

“When people start to get their confidence back, they’ll start drawing down on that savings. We could really see spending take off, hiring take off, and possibly the domestic market take off as well,” Rothman said.

For those watching China’s recovery, Rothman cautions against waiting for macro data like GDP growth, which lags behind real-time economic shifts. Instead, he suggests focusing on consumer confidence, retail sales, wage growth, and household savings trends as early indicators.

“If investors wait for the macro data to illustrate that people have really gotten their confidence back, they’re likely to lose out on a big part of the rally,” he said.