China's depressing corporate deposits growth to eventually close to zero

From 18% in 2002 to 9% in Sep 2012 to -1% in 2021.

According to Barclays, the slowdown of corporate deposits growth (from 18% in 2002 to 9% in Sep 2012) will continue and deteriorate to eventually close to zero (-1% in 2021E) based on organic growth forecasts.

Here's more from Barclays:

The benign trends for retail and government deposits will likely offset the no-growth of corporate deposits, leading to single-digit deposit growth (6%) for the overall banking system ten years from now.

In addition, near term, the 20% RRR offers additional liquidity cushion for China to avoid any liquidity crisis.

Ultimately, the slower deposit growth and higher deposit cost could force banks to allocate capital to more competitive and efficient sectors, positive for banks and China's economy in the long term. The main factor affecting our corporate deposit growth forecast is the pace of disintermediation and capital account opening. We believe large banks (ABC, ICBC, CCB) that are less dependent on corporate deposits will be in a better position to tackle slow corporate deposit growth.

Entering a low-growth era on organic growth analysis: We expect corporate deposit growth to be 7% in 2012E, gradually declining to slightly negative growth (-1%) in 2021E, on:

1) slower GDP growth; 2) lower operating cash flow profitability at Chinese corporates, due to economic slowdown, rising labor costs and less cash efficiency post the infrastructure-driven stimulus of 2008-09; 3) corporations diversifying into other financial investments from deposits; and

4) growth in base money (M1) supply to decrease amidst a declining trade surplus and forex purchases. In addition, in our view, the likelihood of another big monetary expansion is low going forward, and potential capital outflow amid capital account liberalization could be managed by RRR.

High RRR to be a stabilizer: A softening trade surplus, weakening FDI and potential capital account liberalization could trigger deposits to leave China's banking system. However, we believe the impact could be mitigated by China's very high RRR (20%).

Even if China's forex purchases halved to RMB12.5tn (RMB25tn in 2011), the central bank could increase the money multiplier to around 8x (4x currently), by lowering the RRR to 6.5% and to offset the negative impact on total deposits