China increases wealth management product holdings
(2 September 2016 – China) Chinese households, companies and banks held a record 26.3 trillion yuan (A$5.1 trillion) of wealth-management products (WMPs) as the end of June 2016.
The figure highlights risks to the country’s financial system as it faces a boom in shadow banking and.
The products’ value jumped 11.8 percent between December 2015 and the end of 1H 2016, a statement on the China Banking Wealth Management Registration System’s website said. More than 450 banks raised a total of 84 trillion yuan by selling 97,636 WMPs in the first six months, according to the statement.
China has been tightening rules on WMPs since late 2014. Reports say that WMPs are a major factor in the growth of shadow banking, which credit ratings agency, Moody’s estimates to be worth more than 50 trillion yuan. According to the reports, shadow banking tools have been used by some of China’s financial institutions as a way to extend funds to high-risk borrowers and skirt capital requirements.
The China Banking Regulatory Commission has drafted new rules on WMPs, including limiting the involvement of smaller banks and of mass-market investors, sources said. The new rules will limit smaller banks and less wealthy investors from getting involved in WMPs that invest in riskier assets such as equities.
Around 40 percent of the WMP proceeds went to bonds, 17.7 percent into cash and bank deposits, while 16.5 percent was invested in non-standard credit assets, which are mostly loans, according to the statement.
Mass-market individual investors held 48 percent of the outstanding WMPs, while institutions had 29 percent and private-banking clients owned 7 percent. The remainder, totalling 4 trillion yuan, were cross-held by banks themselves. That compared with 3 trillion yuan six months ago, the official data indicated.
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