Former President of Bank of China Calls for Free Markets (Sort of)

china-free-marketsA former president of state-owned Bank of China (BoC) recently told reporters that the government should let some high-yield investment products default. In other words, let the free market operate.

These investment vehicles were sold to savers by wealth managers oftentimes investing in companies or business ventures priced out of traditional bank lending. Perhaps I’m jaded, but just can’t help wondering f he’d be saying the same if they were instead sold to corporations or state-owned institutions.

This shadow banking sector in China is valued at approximately US$3.26 trillion. Globally, this sector is possibly closer to US$100 trillion.

My thinking? This would be the right thing to do. Investing in high-risk products is just that, high risk. If you have the means to invest in such products, you should be allowed to succeed or fail equally without trying to spread risk to governments and/or taxpayers. The last thing the Chinese government should do is risk creating a generation of child investors who refuse to take responsibility for their risky bets.

That said, there is a great argument for regulation on wealth managers and financial advisors who sing, dance, and push their clients into these products. True, each and every investor needs to do proper due diligence on any financial product they invest in. But more often that not, investors fail to perform this same due diligence on the person or entity who is brokering the products. This is just as, if not more, important as researching the asset or product itself.

To read more on this, click here to head over to Nikkei Asian Review.

  • hiteshxcelance

    True story…