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MSCI ESG Issue Brief: Subprime Redux?: Retail Investors and Shadow Banking in China

The rise of Wealth Management Products (WMPs) in China, along with the rise of off-balance sheet lending practices since the global financial crisis (generally referred to as “shadow banking”), potentially puts both Chinese banks and Chinese retail investors in the line of fire.  WMP is the broad term used to describe securitized cash flows that are often opaque, which commonly have maturity periods of 6-12 months, and may be tied directly to overleveraged local governments and corporate borrowers already at production capacity or in overcapacity sectors.  As Chinese WMP sales peaked in late 2012 and early 2013, a large proportion of these products are due to mature in 2014, which may result in defaults if corporate and government borrowers are unable to repay obligations.

Authors: CHEW Emily, WANG, Xiaoshu