Are Chinese Banks Drying up Secondary Market for Wealth Management Products?

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The secondary market for wealth management products (WMP) in China could be on the wane as multiple banks remove “transfer” services for pre-sold instruments.

Starting from 23 March Shanghai Pudong Development Bank (SPD Bank) suspended transfer services for WMP’s, on the grounds that it was implementing “system upgrades.”

SPD Bank is the latest to joint a list ofmultiple lenders around China that no longer provide WMP transfer services, including China CITIC Bank, China Minsheng Bank, China Merchants Bank and Industrial Bank Co,.

These transfer services involve bank clients transferring WMP’s to third parties prior to the withdrawal of WMP funds. Chinese lenders first began to offer this service around 2019, when yields on WMP’s were on the decline.

WMP transfers usually entail one of two methods, with the first involving transfer agreements, and the seller finding a buyer and agreeing upon a price before proceeding to a bank to handle transfer procedures.

The second method involves listing on the bank’s own platforms, with sellers advertising WMP pricing information on such transfer platforms and investors making their own selections independently.

Smaller joint-stock and municipal banks were more inclined to offer the transfer services, including SPD Bank, China CITIC Bank, China Merchants Bank, Industrial Bank Co., China Minsheng Bank, Bank of Ningbo and Zheshang Bank. Big state-owned lenders Bank of China and China Construction Bank have also offered WMP transfer services.

The move was seen as a means of expediting growth of the WMP market and breaking the “debt drought” by providing potential higher returns and liquidity to investors.

Domestic analysts said that while the ability for WMP holders to sell them to other investors helped to cater to certain preference in relation to liquidity and returns, most of the WMP’s being traded fall into the expected yield category, which has fallen out of favour since the launch of new asset management regulations in 2018.

Given that 2021 is the final year of the transitional period set for China’s new asset management regulations and Chinese authorities have since pushed for a shift from expected yield to net value WMP’s, some analysts say the removal of instruments from trading by banks is simply part of this change in regulatory emphasis.

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