According to new proposals for rules issued by the China Banking and Insurance Regulatory Commission, banks will soon be able to invest high-net-worth clients' funds in stocks and shares.

The method by which the regulator wants the banks to buy shares with funds raised from HNW investors by means of "wealth management products" or WMPs is through discrete subsidiaries set up especially for the purpose. This is a further development of a regulatory policy laid down by the Chinese central bank in April, which exhorted banks to set up subsidiaries to invest all monies that they had obtained from HNWs by means of such WMPs. According to one report, this rule (and its concomitant compliance deadline of 2020) is optional.

This extension of the set of asset classes in which such funds can invest comes at a time of very low stock market prices and is part of an attempt to liberalise the banking sector. The proposals or 'draft rules' outline the ways in which the regulator might permit firms to set up wealth management affiliates. Interested parties have until 18 November to comment.

At the moment, banks can invest clients' funds in privately-sold products, as long as they invest minimum amounts dictated by regulations. The regulator wants to lift these restrictions, but nobody knows exactly how far. Reports indicate that it has not yet come up with a maximum percentage of each fund that it wants to allow a bank to invest on the stock market, which might be a sign that the sky is the limit. Reuters, however, quotes Li Qilin, the chief economist at Lianxun Securities in Beijing, as saying that the regulator is only likely to allow a bank to invest one-fifth of each WMP fund on the bourse.

The China Zheshang Bank and the National Institution for Finance and Development said last summer that bank WMPs totalled 33.64 trillion yuan (US$4.9 trillion) at the end of 2016, accounting for more than one-quarter of the asset management market in China.

It was in 2013 when the banking regulator decided that only 35% of the money raised by WMPs could be invested in “non-standard” assets, such as trust loans, which do not trade on China’s principal bond market.