Mainland banks’ wealth management products allowed to invest in domestic stocks and bonds
Beijing will allow wealth management products sold by the mainland’s commercial banks to invest in domestic bond and stock markets, in a move that could stem the flow of investible funds into trust companies engaged in the risky shadow banking sector, two sources said on Thursday.
The China Banking Regulatory Commission also asked banks to set aside funds to guard against potential risks, a banker and a source close to the regulator said.
“The core of the new rule is to make clear the independent legal status of banks’ wealth management products, enabling them to make direct investment instead of seeking third-parties to do so,” the head of wealth management business at a joint-stock bank in Beijing said.
The mainland has been trying to rein in the role of trust companies in its financial system, as it tries to curb growth of the risky shadow banking sector.
Trust firms often team up with banks to sell wealth management products to retail investors and firms.
By the end of September, mainland banks had funnelled roughly 2.9 trillion yuan ($471.23 billion) to trust companies, according to the China Trustee Association. The industry group did not say how much of that money was raised through wealth management products.
The mainland’s shadow banking sector now ranks as the third largest in the world, according to a report by the Financial Stability Board.
Shadow banking may involve up to 27 trillion yuan of assets, equivalent to a fifth of the mainland’s formal banking sector, according to the Chinese Academy of Social Sciences.
