Private Banking in China – When the Honeymoon Is Over

There is no doubt, that September 2005's Interim Administrative Rules on Private Wealth Management Business of Commercial Bank together with the Interim Administrative Rules on Derivative Transactions of Financial Institutions promulgated earlier in 2004, have provided China's private wealth management regime with its first distribution platform for structured products for private individuals.

In its initial stages, the products offered under the private wealth management regime predominantly took the form of structured deposits. In April 2006, the central bank of China launched the Qualified Domestic Institutional Investors (QDII) scheme, allowing various financial institutions in China to raise onshore funds and invest in offshore financial products. Four days later, armed with its experience overseeing the private wealth management regime, the banking regulator unveiled the commercial bank QDII regime, more than a year ahead of the securities regulator and the insurance regulator. The commercial bank QDII regime can be seen as an extension of the private wealth management regime under which the funds are used for offshore investment.