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  • Ernie Diaz

Explicit Checks

Tech, ed, and now gaming company crackdowns are grabbing all the China financial headlines. "Hurting Wall Street" is the MSM perspective; "Protecting the People", is the CMSM's. Where between lies truth?

Another crackdown, for your consideration- one far less heralded, in that it only affects Chinese investors. The PBOC is ramping up pressure for "wealth management reform" by the end of the year. The key point for reformation is the implicit guarantee of returns built into wealth management products. "Trust me, you can't lose," is still not financially incorrect language in Chinese asset management circles.

"Of course no serious institutions are explicitly guaranteeing returns," says Edward Lehman. "But there is still an ingrained inclination among China's wealthy to only entrust their investments to someone who is promising that investment won't lose, if not ensured on paper, then implicitly guaranteed. As a result, many banks and other asset management firms take big losses covering such promises, often in opaque ways. Like other Chinese crackdowns, I see this causing temporary pain for the players involved, but a much more healthy, competitive environment long term."


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