Chinese Savers Flock to High-Yield Bank Offerings

Zhang Defa hurried into an Industrial & Commercial Bank of China branch in Shanghai on a sizzling July afternoon breathlessly looking for the manager. The day before, Zhang had received a text message saying the bank was selling a 37-day wealth-management product with a 5 percent expected annualized return, principal guaranteed. He was too late. The offer, requiring a minimum investment of 500,000 yuan ($81,500), had sold out in less than three hours. Zhang would have netted 2,534 yuan in only five weeks. “This is crazy, but where else can I put my money without losing sleep these days?” says Zhang, a retired engineer who has been moving cash out of his savings accounts into such investments for more than a year. “The return is fairly decent, and more importantly, I know my money is safe at a government-owned bank. Even if the bank runs out of the money, the government won’t.”

Chinese investors hold more than 32,000 wealth-management products, and their value has surged eightfold from 2009 to the end of March, to 8.2 trillion yuan, according to government data. (That’s almost the size of the Australian economy.) Fitch Ratings put the value even higher in May, at 13 trillion yuan. And the numbers are growing: A record 1,137 wealth-management vehicles were sold by about 70 banks in the two weeks ended June 28, an increase of almost 50 percent from the first two weeks of the month, according to Benefit Wealth, a Chengdu-based consulting firm that tracks the data back to 2007.