What are the implications of China's tightened wealth management regulations?

Analysts warn that small banks may suffer and growth of the wealth management sector may slow down.

According to a report, the China Banking Regulatory Commission released an urgent internal circular ordering banks to check sales of third-party products made through their branches, mainly insurance, trust products and investment funds. It said the tightening of controls is intended to ward off potential risks. 

ABF: What does this say of China's wealth management sector? What will be the implications of tightened regulations?

BBVA: Alicia Garcia Herrero, Chief Economist for Emerging Markets
The tightened regulation demonstrated the authorities’ awareness of potential risks associated with wealth management products. It is in response to the outbreak of Huaxia case, which has exposed some irregularities in wealth management sector including the misleading descriptions in selling and the bank’s lack of internal control.

The tightened regulation can reduce the operational risks in sales of wealth management products and better protect the interest of general investors. Although it might slow down the growth of wealth management sector in the short run, it is a positive development for the long-term outlook of the sector.

In our opinion, wealth management products will continue to appeal to investors as long as the deposit interest rates haven’t fully liberalized. This is why, if the Chinese authorities, want to reduce the risk inherent to the development of the shadow banking, it seems important to take additional steps towards interest rate liberalization.

Maybank Kim Eng: Ivan Li, Analyst
Our take is most of those “wealth management” products are just way of by-passing the interest rate control set by the government. The mainland banks need deposit, and the hunt for deposit has been fierce, especially among the smaller banks.

If China is going to tighten the regulations on this products, we are likely to see the small banks to suffer, as it would be even harder for them to gather deposits.