Default exposes risks in wealth management market

Xiao Gang, chairman of the Bank of China, wrote in an article in October that some banks sold new wealth management products to repay matured ones and this was in essence a Ponzi scheme.

Over the past couple of years, Chinese banks have sold a large number of wealth management products promising higher earnings to help absorb funds from customers who were unwilling to put their savings into the low-yielding bank deposits.

The wealth management funds sold by the country's banking sector totalled 12 trillion yuan by the end of September, accounting about 13.3 percent of the country's outstanding renminbi deposits, according to the international rating agency Fitch Ratings and the People's Bank of China, or the central bank.

The investment default also showed that many savers lack awareness of the potential risks in wealth management products sold at banks, experts said.

Zhao Qingming, a senior researcher at the China Construction Bank, said that the case would lead to more formal information disclosures in the wealth management market and strengthened supervision of commercial banks.