The launch of new asset management regulations has already taken a heavy toll on the wealth management products (WMPs) that are considered a core part of China’s shadow banking sector, with a precipitous drop in issuance levels in April.
On 27 April Beijing officially launched the “Guidance Opinions Concerning Standardisation of Asset Management Operations by Financial Institutions” (关于规范金融机构资产管理业务的指导意见), which was expected to cause a major shake-up of China’s financial sector by removing the implicit guarantees undergirding financial product such as WMP’s.
New data indicates that WMP issuance has already posted a precipitous decline in tandem with the launch of the new measures, despite the release of 400 billion yuan in additional liquidity by a targeted cut to required reserve ratios implemented on 25 April.
Data from Rong360 points to the issuance of 10,849 WMP’s in April, for an on-month decline of 2783 products, or a drop of 20.42%, as well as a year-on-year decline of 817 products.
Short and medium-term WMP’s saw their share of all WMP’s decline, while long-term products posted an increase.
Yields for bank WMP’s also saw a modest decline, with the average projected yield of 4.85% marking an on-month fall of 0.03 percentage points.
Rong360 analysts say that the launch of the new asset management regulations has impacted WMP’s in three key ways:
i) Removal of implicit guarantees, which means that WMP’s no longer enjoy protections on principal or interest. Some banks have already suspended the sale of WMP’s with protected principals despite the transitional period for the new regulations running until 2020.
ii) The shift from projected yield WMP’s to net value WMP’s.
iii) The requirement that the sale of closed-end WMP’s be suspended within 90 days, which means their disappearance from the market within a three-month period.