China’s financial
regulators are working together to draft sweeping new rules for the country’s rapidly-expanding
asset-management products that aim to make it clear there’s no government
guarantees on such investments, according to people familiar with the matter.
The draft rules would
apply to products issued by banks, insurers, brokerages and other financial
institutions, said the people, who asked not to be identified because the
discussions are private. The rules would be phased in after existing products
mature, and would only apply to new issues, they added.
Households and
companies have poured into asset management products, seeking higher returns
than bank deposits can offer, all the while assuming the government would
prevent failures should investments sour. Changing that mindset is seen as key
to reining in financial risks and curbing excessive credit growth.“China’s
asset management business will face the most stringent rules ever,” said He
Xuanlai, a Singapore-based analyst at Commerzbank AG. “This will force shadow
banking assets to be brought back onto the balance sheet and improve transparency
of banking assets. “
President Xi Jinping
and his top economic deputies have vowed to make control of financial risks
their top priority in 2017, after fiscal and monetary stimulus successfully put
a floor under the government’s growth goal of at least 6.5%.China’s
asset-management products totaled about 60 trillion yuan (US$8.7 trillion) as
of June 30, according to a recent estimate by an official at the China
Securities Regulatory Commission. Many of the products aren’t recorded on
institutions’ balance sheets. As of end-December, off-balance sheet
wealth-management products issued by banks amounted to 26 trillion yuan,
according to the central bank.
The new rules are
being drafted by the central bank and the CSRC, together with the regulators for
the banking and insurance sectors, the people said.Under the draft rules,
financial institutions would be banned from investing the proceeds of
asset-management products in non-standard credit assets, mostly loans, or in
beneficiary rights linked to such assets, the people said. Financial
institutions would be required to set aside 10% of fees from managing clients’
assets as reserves for potential risks.
The draft is still
being discussed and is subject to changes, the people said.The People’s Bank of
China, the CSRC and the banking and insurance regulators didn’t immediately
respond to requests for comment.
China’s capital
markets aren’t as developed as their western peers, meaning the banking system
accounts for most financial assets. Besides regular deposits and loans, banks
collect money from investors by selling wealth management products. Money is
then often channeled to companies or projects that otherwise have little access
to formal lending.
Such off-balance sheet
financing swelled in the past decade. Warning lights flashed in 2014 when some
of those asset management plans were on the verge of default, spurring
increased efforts by regulators to get a handle on such practices.
Credit data in January
suggested banks were again boosting shadow lending as the broadest measure of
new credit surged to a record while new loans trailed estimates.
If adopted, the draft
regulations may mark a renewed push to curb such growth. The coordinated move
also signals increased cooperation among China’s regulators, following reports
that officials have considered a revamp to financial supervision by merging
some regulators while offering the central bank more power on economic
policy.Other than banks’ wealth management products, trust firms had 15.3
trillion yuan of products outstanding at the end of June, according to the CSRC
official. – Bloomberg