China plans to tighten rules on US$2t corner of market

[BEIJING] China's banking regulator plans to tighten rules on so-called cash-management products, according to people familiar with the matter, impacting an estimated US$2 trillion worth of the investments.

The China Banking and Insurance Regulatory Commission aims to treat CMPs similar to money-market funds by limiting pricing and restricting where and for how long the inflows can be invested, the people said, asking not to be identified as the deliberations are private. CMPs are ultra-liquid, high-yield instruments just like money-market funds, but are issued by banks while the latter are sold by asset managers.

Looser regulation of CMPs currently allow banks to offer higher yields than those on money-market funds and the CBIRC's changes could damp their investment appeal, the people said. The moves are another step in China's fight against financial risk as policy makers try to contain the fallout from rising defaults and a slowing economy.

Money market funds, overseen by the securities regulator, cap duration of their investments at an average 120 days while there's no limit for CMPs. The CBIRC also wants to make pricing stricter by curbing so-called deviation, the people said. The CBIRC didn't immediately reply to a fax seeking comment.

Asset managers are allowed to calculate the net asset value of a money-market fund in two ways. However, when the NAV under one method deviates beyond a specified level from the other, the fund is required to take measures such as limiting new subscriptions or even liquidate assets.

CMPs accounted for more than US$2 trillion, or about 60 per cent of outstanding wealth management products in June 2018, according to data from Jinniu Wealth Management. Individuals hold nearly 90per cent of WMPs mainly because many believe they're shielded from losses -- a view officials have tried hard to discourage.

WMPs are issued by banks and typically offer yields of 2 per cent to 5 per cent, compared with 1.5 per cent on one-year bank deposits. They can invest in anything from bonds and stocks to property.

BLOOMBERG