China mulls new asset management rules to rein in risks

BEIJING - China's regulators have aimed to curb financial risks by releasing draft guidelines that will unify rules covering asset management products issued by all types of financial institutions, analysts said.

The sweeping new guidelines require financial institutions to set leverage ceilings on asset management products. For example, the total assets for an open-ended public offering product should not exceed 140 percent of the product's net assets, while the total assets for a closed-end public offering product should not be larger than 200 percent of its net assets.

There is a transition period for the draft guidelines that will last until June 30, 2019.

The move reinforced views that regulators will continue to tighten supervision on risky areas of the financial sector, according to analysts.

"The drafted guidelines will split investors' attitude on financial products, with investors with a high risk appetite tending to invest in publicly offered funds, while those with little appetite for risk would prefer to put their money in banks or buy treasury bonds," said Huatai Securities analyst Li Chao.

The China International Capital Corporation research notes quoted the People's Bank of China, the central bank, as saying that the collective outstanding volume of the asset management business in China had risen to 102 trillion yuan ($15 trillion) by the end of 2016.

"Looking into the future, the growth of financial products will slow down," said Ma Kunpeng, analyst with China Merchants Securities Co, Ltd.

Although the rules are not effective yet, analysts believe there will be a psychological impact on investors in the financial market.

"In the long run, the overall asset management strategic arrangement will benefit the stock and bond markets, as it will boost the financial industry to better serve the real economy," said Shu Qiquan from Qianbofund.com.

In the short term, however, tougher rules on banks' wealth management products will curb money flows into the stock market from lenders, according to Shu.

The guidelines were drafted jointly by the People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance Regulatory Commission and State Administration of Foreign Exchange.

The move is in line with the central bank's policy framework, which involves the use of both monetary tools and macro-prudential regulation to address risks.

While traditional monetary policy can address instability during economic cycles, it alone cannot deal with fluctuations during financial cycles, and that's where macro-prudential regulation comes in, the central bank said in its third-quarter monetary policy implementation report.

In a bid to address overall financial risks, the central bank has already widened its macro-prudential assessment (MPA) framework this year to include off-balance-sheet wealth management products, and planned to include a debt instrument called negotiable certificates of deposit (NCDs) in 2018.

More financial activities, markets, institutions and infrastructure will be covered by the macro-prudential policy framework, according to the central bank.

The era of tough financial supervision has just begun, analysts agreed.