China Continues Wealth Management Product Love Affair

Tom Burroughes

18 August 2014

Chinese households have poured more savings into wealth management products to a level of RMB12.7 trillion ($2.1 trillion), even though the Asian giant’s government has sought to curb this sector due to fears about possible blowups, media reports said.

The China Banking Wealth Management Registration System produced data showing that the outstanding value of the sector rose by almost a quarter in the first six months of this year, compared with the previous six-month period, reports said.

Wealth management products, according to a report by Bloomberg, are seen as less risky than trust products; I the latter case, they are higher-yielding.

The ascent of a so-called “shadow banking” system has alarmed investors and policymakers, encouraging curbs to prevent a repeat of some of the problems associated with the credit crunch in the West almost six years ago.

Wealth-management products usually insist on an investor placing a minimum sum of only RMB50,000; trusts tend to be higher up the wealth scale.

There was a 44 per cent gain in the value of the wealth products in 2013, media reported the China Banking Regulatory Commission as saying. Almost 70 per cent of the outstanding value of the wealth funds was invested in bonds, the money market and bank deposits as of the end of June.

Products issued by banks in the first half of the year offered an average annualized return of 5.2 per cent to investors, the report showed, higher than the upper limit of 3.3 per cent interest rate banks can provide on their one-year deposits.

The CBWMRS report also said that 31 products due during the first six months led to losses.