Wealth management products' sales increase

Updated: 2011-08-10 10:10

By Wang Xiaotian (China Daily)

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BEIJING - Xi Shijia, 28, an IT clerk at a State-owned company in Beijing, said he will not stop buying individual wealth management (IWM) products from commercial banks in the second half to safeguard against asset losses.

The master's graduate from Tsinghua University has been purchasing IWM products since the beginning of the year, especially those that will mature within one month and those with a yield of around 4 percent.

"The gap between deposit interest rates and the inflation rate is too large. That means my deposit will depreciate if I just keep the money in the bank," said Xi, adding that he does not have better investment choices amid a depressed real estate market and a gloomy stock performance.

Sales of IWM products in China rose markedly in the first half after the gap between deposit interest rates and the inflation rate became the widest in three years.

In June, the gap reached 3.15 percentage points.

The People's Bank of China raised the one-year deposit rate by 25 basis points to 3.5 percent in July.

But the consumer price index (CPI), a main gauge of inflation, rose by 6.5 percent year-on-year in July, the National Bureau of Statistics said.

Data from Chengdu-based Fanhua Puyi Investment Management Co Ltd shows that Chinese commercial lenders issued 8,497 IWM products in the first half, worth more than 8.5 trillion yuan ($1.33 billion) in total, exceeding the 7.05 trillion yuan issued during 2010.

These products issued by Chinese commercial lenders usually require a minimum investment of 50,000 yuan, and the capital from buyers often goes into bonds, loans, and company projects.

"Because of much lower deposit rates compared with CPI, a large amount of deposits has flown to off-balance-sheet business such as wealth products to obtain higher returns," said Chen Hui, an analyst at Bohai Securities Co Ltd.

Li Ran, supervisor of the wealth management sector at a Beijing branch of Bank of China Ltd, said first-half sales of wealth products at the branch increased substantially compared with the same period of last year.

"Tightened liquidity trapped many companies in cash flow problems, therefore they are inclined to use equity as a pledge to finance at a comparatively high cost, which provides good investment opportunities for our clients," he said.

As much as 50 percent of the products' outstanding money may go to companies, including developers and local government financing vehicles, instead of into stocks and bonds, Bloomberg quoted Wilson Li, an analyst at Guotai Junan Securities Co as saying.

The rapid growth of banks' wealth management business may increase systemic financial risks and affect the implementation of monetary policies, because common monetary tools cannot directly affect the flow of capital to these products, said Liu Xiaoxin, a professor at Nankai University.

Hu Yuanyuan contributed to this story.