In China, WMPs are defined as “very short-term duration notes (one to six months, on average) with decent yields. Based on their association with China’s major banks, wealth management products are viewed as risk-free by domestic investors”, according to China consultant Z-Ben.
WMPs have been among the most pursued investments in the mainland.
The aggregate amount of these WMPs reached RMB 29.05trn ($4.3trn) as of last year, up 24% from 2015-end, the CBRC report noted. Those for individuals and private bank clients accounted for 54% of the total, or RMB 15.5trn.
About one-fifth of the WMPs promise guaranteed returns.
By comparison, mutual funds are not considered WMPs. The assets of China’s mutual fund industry are far lower − RMB 9.16trn at the end of 2016.
Breakdown of WMP investors in China*
|
|
2016 |
2015 |
|
Individuals |
13.5 |
11.6 |
|
Corporates |
7.5 |
7.2 |
|
Private banks |
2.1 |
1.7 |
|
Interbank |
6.0 |
3.0 |
|
Total |
29.1 |
23.5 |
*RMB Trn. Source: CBRC
Regulator scrutiny
WMPs have been under tight monitoring by the regulators since last year as they are considered a convenient vehicle for banks to issue off-balance sheet loans to corporates. The CBRC released new rules to raise transparency and improve the risk management of these products.
“Over the past few years, WMPs have become an important source of funding for Chinese borrowers who have difficulty obtaining traditional bank loans, such as corporates in industries facing overcapacity problems, property developers, and other corporates facing funding constraints,” according to a report from ANZ.
The CBRC report showed that 44% of the total WMPs are invested in fixed income – 8.7% in government-related bonds and 35.1% in corporate bonds.
Another 30% invest in money market products or bank deposits, while about 17.5% goes into credit assets, which are not traded in the exchanges or the China’s interbank bond market, the CBRC report noted.
“The WMPs have directly or indirectly funded real economic activities and support economic development.” It is estimated that at the end of 2016, RMB 19.65trn of capital, or 67.4% of total WMPs, have supported real economic activities.
Weighted-average yield of close-ended WMPs
Source: CBRC
The recent regulatory tightening measures caused WMP yields to increase to 4.5% from 3.5% at the end of 2016, reversing the decreasing trend over the past three years.
“Given the regulatory tightening of the WMP sector, asset managers’ positions in bonds are shrinking. This is a structural reason causing a sell-off in the bond market. In addition, other factors such as the PBoC’s tightening bias and strong bank lending have also helped push bond yields higher,” according to the ANZ report.
