Winning the War to Rein in China's Wealth Management Products

At the beginning of July this year, the China Banking and Insurance Regulatory Commission, or CBIRC, announced that it is planning to further tighten rules on the country's huge wealth management products (WMPs) sector. China's WMPs are estimated to value Rmb21 trillion, or $3.09 trillion, at the end of June, of which about 70% are now invested in standardized assets such as bonds, deposits and money market instruments, according to the CBIRC.

In its online statement, the regulator said WMPs should now be managed based on their net value, and banks should standardize the management of their fund pools to prevent shadow banking risk. WMPs have been popular with retail investors. They are issued by banks, lending them respectability, and typically offer yields of 2% to 5%, compared with 1.5% on one-year bank deposits. Demand for WMPs was also boosted as alternative palatable investment options became more limited as a result of poorly performing stock markets and tighter restraints on moving money out of China were introduced.