Everbright Bank sells shady product online

China Everbright Bank, a major State-owned bank in China, has been selling a dubious financial product called Dingcunbao in its official online store on taobao.com since December 3, which experts warned Sunday may be misleading.

The product is advertised as a wealth management product (WMP) with term deposit features - as suggested by its name, literally "term-deposit trove" - and offers higher returns than the benchmark interest rates for periods varying from three months to five years, according to the bank's brochure in its store on taobao.com, the country's largest online consumer market.

One of the peculiar features of the WMP is its extremely low minimum investment threshold of only 50 yuan ($8). The advertising slogan reads "Manage your wealth for only 50 yuan," according to another online brochure seen by the Global Times Sunday.

The China Banking Regulatory Commission (CBRC) requires the minimum investment threshold for any WMP in China to be 50,000 yuan to ensure investors with adequate risk-bearing capacities.

It is "highly inappropriate" to categorize the product as an online WMP, because "it may mislead the public to equate a WMP sold by banks with a bank deposit," Wen Chunling, an associate director of credit rating agency Fitch Ratings China, told the Global Times Sunday.

"Chinese banks should clearly distinguish WMPs from deposits and help investors develop sound risk awareness about WMPs," Wen noted.

Chinese media widely reported in December that employees of Hua Xia Bank and Industrial and Commercial Bank of China sold large amounts of unauthorized WMPs that failed, leading to huge losses and prompting police investigations and lawsuits.

"Buying a WMP is not like buying clothes on taobao.com," but requires reasonable understanding of the potential risk of a WMP and of the investor's own risk tolerance, Wen said.

The CBRC should strengthen the implementation of regulations on WMP management, Wen warned, saying,"otherwise, there may be inconceivable systemic risks, which will hugely impact the country's banking system."

Neither Everbright Bank nor taobao.com was available for comment Sunday.

Sales of WMPs in China have been largely unregulated and grown rapidly in recent years, and they are being used by the banks to go around interest rate regulations, Liu Shengjun, deputy director of CEIBS Lujiazui International Finance Research Center in Shanghai, told the Global Times Sunday.

The People's Bank of China, China's central bank, fixes the country's deposit interest rates, and commercial banks have little freedom to raise or cut them to adjust to market conditions.

Many of the current WMPs may be fraudulent, and there is a consensus that they should be regulated, considering the serious consequences a massive default would cause, but regulators have not agreed on the exact measures, Liu said.

Regulators should take into account the fierce competition from non-bank financial institutions, such as online lenders, and liberate the interest rates, while putting a cap on the risky WMPs, Liu urged.