The Phaserl


China for Wealth Management and Shadow Banking

By James Corbett, The International Forecaster:

The Chinese credit crisis has entered its next phase. A few weeks ago we wrote about the Bank of China’s ill-fated attempts to reign in the shadow banking system that had developed around its own lax credit policy of recent years. For those who didn’t catch it, that ended with system outages at several Chinese banks that left the public concerned about a credit crisis.

Now the other shoe has dropped. Chinese consumers worried about the bank outages several weeks ago have been flooding into “wealth management products.” These investment products are offering returns of around 5%, often in very short period of a few weeks, significantly above government-capped savings deposits which are running at 3% annually. Also, the perception is that WMPs are safer than keeping money in a savings account, since they are typically offered by government-backed banks. Technically, however, the WMPs are part of China’s burgeoning shadow banking system and are often invested in derivatives and other risky products.

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