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China Plans to Tighten Rules on $ 2.2 Trillion of Market Corners

BEIJING – The Chinese banking regulator is considering tightening the rules for cash management products, according to people familiar with the issue, which would have an impact on investments worth an estimated $ 2 trillion, Bloomberg reported Monday.
China’s Banking and Insurance Regulatory Commission aims to treat PCMs as money market funds by imposing stricter pricing rules and limiting the place and duration during which the inflows can be invested said the population, asking not to be identified because the proceedings are private. PCMs are issued by banks and are more liquid than money market funds, which are sold by asset managers.
Less stringent regulation of MCPs currently allows banks to outperform money market funds, and changes made by CBIRC could dampen their attractiveness for investment, the people said. These measures are another step in China’s fight against financial risk as policymakers seek to limit the fallout from rising insolvencies and the slowdown in the economy.
“The returns of the CMP will fall and gradually lose their comparative advantage over money market funds,” said Liao Chenkai, an analyst at Capital Securities Corp. in Shanghai, which predicts a decline in bank revenues. “But since most investors buy the products for their liquidity rather than their return, I do not expect a significant impact at the market level,” he said.
Money market funds, overseen by the securities regulator, set the duration of their investments at 120 days on average, while there is no limit for CPMs. CBIRC also wants to make prices more stringent by reducing gaps, says the population. CBIRC did not immediately respond to a fax requesting comments.
Asset managers are allowed to calculate the net asset value of a money market fund in two ways. However, when the NAV of one method differs from the other, the fund is required to take measures such as limiting new subscriptions or even liquidating assets.
CMPs accounted for more than 13 trillion yuan ($ 2.0 trillion), or about 60 percent of outstanding wealth management products in June 2018, according to data from Jinniu Wealth Management.
People hold nearly 90 percent of the WMPs, mainly because many believe they are protected from losses – a view that officials are trying to deter.
WMPs are issued by banks and generally offer returns of 2% to 5%, compared with 1.5% for one-year bank deposits. They can invest in anything from bonds and shares to property. Like US mortgage-backed securities, WMPs had become the building blocks of a shadow banking system that existed largely outside banks’ balance sheets.
(Sahar News Monitoring Desk)

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