China's households divert 12.7tr yuan to wealth-management products

Mainland households increased the amount of savings diverted into wealth-management products to a record 12.7 trillion yuan (HK$16 trillion) as the central government tries to manage risks from an explosion in shadow banking.

The outstanding value rose 24 per cent year on year in the first half of the year, the China Banking Wealth Management Registration System said on its website yesterday. The average annualised return was 5.2 per cent, compared with 3 per cent for benchmark one-year deposits.

As signs emerge of weakening demand and rising default risks for higher-yield trust products, sales of the wealth-management products may keep surging.

For banks, a more than twelve-fold increase in the value of the products since 2009 is pushing up funding costs, threatening to weigh on profits.

"Compared with trust products, wealth-management products are less risky," said Cao Yang, an analyst at Shanghai Pudong Development Bank.

The government is trying to contain risks outside the banking system while sustaining growth as the property market slumps and the economy heads for the slowest expansion since 1990.