The lack of adequate oversight of wealth management services in the mainland could be a serious time bomb.
That said, regulation of the fast growing market could be extremely difficult.
Such investment products have an intricate relationship with the mainland stock and bond markets, so overly heavy-handed regulatory moves may endanger the stability of China’s financial system.
Wealth management products’ complicated structures also don’t lend themselves to easy classification, making it hard to decide which regulatory body should be responsible.
In fact, regulatory bodies may not really want to play the role of watchdog over these complex financial instruments, which cannot be easily understood.
Compared with financial experts, it would be much harder for an average person to figure out how these products work.
So, the public, including the superrich, has little defense against fraudulent schemes.
Investors can easily fall into the traps of fraudulent investment vehicles, as many are unable to say no to the lucrative returns promised.
A good example is Bernard Madoff’s Ponzi schemes, which worked for two decades before he was busted.
I can only say, don’t overtrust your investment adviser.
This article appeared in the Hong Kong Economic Journal on April 8.
Translation by Raymond Tsoi
[Chinese version 中文版]
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