China banks introduces new products to defy loan curbs

Aside from challenging credit curbs, the wealth products are also a form of financial experimentation in China that lay the foundation for a liberalised interest rate market.

Looking for a "golden key", a "diamond fortune" or "happy heart wealth"?

Chinese banks, chafing under the government's loan curbs, are getting creative, pumping out high-yielding wealth management products with enticing names to woo depositors who are otherwise bereft of investment opportunities and channel credit to preferred clients.

But this is not just a matter of banks making an end-run around regulations. The wealth products are also a form of financial experimentation in China, laying the groundwork for a liberalised interest rate market, a reform that is essential to the economy's long-term health.

"Our products are selling very well. You can see inflation pressures are big and people don't have plenty of investment opportunities nowadays," said Liu Ruixue, a sales assistant at a branch of China Merchants Bank in Beijing's financial district.

People with spare cash to invest have few options in China. The stock market has been sluggish for months, government policy tightening has dented the appeal of property and savings rates in banks are lower than inflation. Hence the appeal of the wealth-management products.

Chinese banks sold an accumulated 7 trillion Yuan ($1.07 trillion) in wealth products last year, up nearly 50 percent from 2009, according to state media. All indications are that this momentum continued into 2011.

View the full story in Business Recorder.