BEIJING, May 2 (Xinhua) --
China's banking regulator has moved
to tighten its regulation over banks'
wealth management products to dissolve
risks in the shadow banking system
that may jeopardize the country's
financial stability.
The China
Banking Regulatory Commission (CBRC) said
on Thursday that it would strictly
control the direction of investment by
wealth management products to ensure
such investments are in line with
the state's macro and industrial
policies and support the physical
economy.
The banking regulator
vowed to closely monitor bank
operations using money pooled from
sales of wealth management products,
short-term financial products yielding a
much higher rate than bank
deposits.
The benchmark interest
rate of one-year deposits stands at
3.25 percent.
Such wealth management
products are considered an important
part of China's shadow banking
system, a complex and unregulated
sector that has emerged and grown
significantly in China in the last
few years.
The CBRC ordered
banks to fully disclose information on
wealth management products and vowed
to tighten oversight over sales
activities of such products through
covert investigations.
Risk warning
must be prioritized and unauthorized
sales and misleading words are
prohibited in sales of such products,
according to the CBRC.
The
tightening of regulation over wealth
management products came after Chinese
banks' rushing to sell such
off-balance-sheet products in recent years
to evade regulatory oversight, raising
concerns that they may threaten
financial stability in the world's
second-largest economy.
Sales of
wealth management products have helped
channel funds to borrowers or
activities explicitly banned by government
regulation amid efforts by the State
Council, or China's cabinet, to
rein in the property sector by
limiting bank loans to real estate
developers.
Some estimate wealth
management businesses have accumulated to
a combined level equal to about 5
percent of the banking sector's
assets, which stood at 133.6 trillion
yuan (about 21.5 trillion U.S.
dollars) at the end of last
year.
The banking regulator
also sounded the alarm over loans
extended to local government financing
vehicles (LGFVs), or financial entities
set up by local governments to
invest in infrastructure and other
projects, which are considered another
major source of risk for
China.
A CBRC spokesman warned
that commercial lenders should calculate
their loans to LGFVs that are
due each month, make timely
communications with local governments and
take precautionary measures to prevent
major default incidents.
Banks
are now banned from extending credit
to vehicles with debt-to-asset ratios
over 80 percent or a cash-to-debt
ratio lower than 100 percent.
（Editor：ChenLidan、Wang
Jinxue）
