China’s Wealth-Management Product Boom Seen Cooling on Rules

  • China Merchants Securities cites regulation, lower yields
  • Analyst Ma Kunpeng doesn’t say when decline may start

China’s multi-trillion dollar boom in wealth-management products, under scrutiny around the world because of potential threats to financial stability, is set to cool as yields fall on tighter regulation, according to China Merchants Securities Co. analyst Ma Kunpeng.

Ma cited a “significant slowdown” in the products’ growth in the first half and said that WMPs may shrink in the future, with money flowing elsewhere, in an e-mailed note dated Sept. 4. He didn’t say when.

Banks have started to lower yields on WMPs in preparation for requirements for funds to be held in third-party custody, the analyst said, adding that such a change may be implemented over six months to a year and will eventually help defuse risks in the system. Currently, banks can use money generated from investment assets for longer-term products to help make payments on shorter-maturity products, Ma said.

Larger lenders and mid-sized national banks such as China Merchants Bank Co. and China Everbright Bank Co. have already slowed growth in their WMPs, and city banks and rural lenders will follow that lead, the analyst said.

The Chinese government and agencies including the International Monetary Fund are focused on potential risks from WMPs that rose to a record 26.3 trillion yuan ($3.9 trillion) as of June 30.

QuickTake Q&A: Don’t Say You Weren’t Warned About China’s WMPs

— With assistance by Amanda Wang

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