Listed Chinese firms invest in wealth management products

Listed Chinese firms invest in wealth management products

Staff Reporter

2013-07-03

Amid the credit crunch, many Chinese banks have rolled out wealth management products with high yields, which have attracted numerous investors, including listed firms with idle funds in hand.

According to Industrial Securities, in the third week of June the yield rate of one-month renminbi-denominated wealth management products issued by major banks has risen further to 5.06% per annum, while the rate of four and nine-month products issued by banks limited by shares hit 5.67% and 6.2%, respectively.“The annualized yield rate of wealth management products has climbed to 7% recently, up from 4%, greatly boosting their attractiveness,” remarked Hu Zhenchao, secretary to the chairman of Fuanna, a household textile maker. As a result, the company purchased 50 million yuan (US$8.2 million) in one-month wealth-management products, featuring principal protection and floating yield rates, issued by the Industrial Bank on June 21. On June 26, the company announced that, in order to enhance the efficiency and yield of the funds, the board of directors augmented the quota for investment in low-risk banking wealth management products with its own 310 million yuan (US$50.5 million) in idle funds, up from 250 million yuan (US$41 million).

In the same vein, Giodon, a major engineering firm, announced on June 27 the purchase of 70 million (US$11.4 million) of 30-day wealth management products with a 6.5% annualized yield rate featuring principal protection and a guaranteed return, issued by the Bank of Beijing.

Another favored product of listed firms is trust wealth management products. Meihua Group, a biotech firm, announced in late May the investment of 200 million yuan (US$32.6 million) in trust wealth management products issued by Bohai International Trust for a two-year period.

“Compared with banking wealth management products, trust wealth management products have even higher yields but also much higher risks,” notes a ranking manager of a listed firm.

Yotrio, an outdoor furniture firm, incurred heavy losses from its 200 million yuan (US$32.6 million) investment in two trust products, due to the steep price drop of mortgaged stocks.

A study conducted by Shanghai Stock Exchange shows that listed companies have started to invest heavily in wealth management products issued by banks in recent years, due to unreasonable funding allocation in the financial system.

Zhou Changqing, author of the report, points out that, driven by high returns, such investments often become a kind of shark loan. They eventually deprive substantive economies of needed finance on the one hand and impose heavy financial burden on borrowing enterprises on the other, the latter which augments the risk of unsecured loans.

Zhou suggests that regulations should rationally allocate social funds, so as to alleviate the fund shortfall of small and medium enterprises and curb capital costs on the market.