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The People's Bank of China is set to tighten supervision of shadow banking businesses in an effort to prevent asset bubbles in 2017 and to place greater importance on managing financial risk. The PBOC also urged financial institutions to strengthen liquidity management and keep next year's lending growth at a "rational and appropriate" pace.
Central bank officials will include off-balance sheet wealth management products into its risk-assessment framework next year. Such operations will be included as part of the central bank's macro-prudential assessments. China's 3.5 trillion US dollar wealth management industry has been facing risks, as off-balance sheet products channel deposits into risky investments with little regulatory oversight.
The move may threaten financing for weaker companies already grappling with mounting defaults after local note failures jumped four-fold this year. Chinese lenders, the nation's biggest bond investors, often rely on such arrangements to circumvent risk-control rules.
"The monitoring may drag on growth of WMPs that banks authorise third-party asset managers to oversee so they can purchase riskier debt with leverage", according to money manager Shanghai Silver Leaf Investment Co.
