Dec 06, 2012 04:22 PM

A Wealth Management Product Fails in China. So Who Pays?


(Shanghai) – A crowd of angry investors packed the Shanghai branch of Huaxia Bank on December 3.

They had heard the first of four phases of repayment in a 119 million yuan wealth management plan had not been made and demanded Huaxia return their investments. 

Among the protesters was a factory owner from nearby Ningbo who rushed to Shanghai with his wife and groom-to-be son after hearing his investment was in trouble.

The factory owner had invested all of the 1.1 million yuan he had set aside for his son and his bride at a Huaxia branch in Jiading, a suburb of Shanghai. Now he feared he may have lost even his original investment, something that has never happened in the history of wealth management products in China. 

By most standards, the man is not a typical taker of big risks. He owns a small garment factory in Ningbo, lives a modest life and got the money he invested from the sale of an old house.

He originally planned to buy another wealth product with an expected annual interest rate of 5.8 percent, he said. 

"I had filled out the purchase form for that product," he said. "The bank's lobby manager saw I was about to invest 1.1 million yuan and told me, 'Why don't you go inside (to the VIP room)? We have a better product with a 12 percent annual interest. It's 100 percent risk free. All you need to do is pick up your money when the time comes.'"

Without even reading the contract, the man said, he signed up to buy a piece of a plan called Zhongding Wealth Investment Center. The factory owner's portion was to mature in January.

'The Bank President Bought It'

The man's experience was similar to those of the 40-odd investors present at the bank that day. In late November, they started getting news that the investment was in trouble.

They gathered first at the Huaxia branch in Jiading, then took their protest to the downtown Shanghai branch. They say the bank's employees recommended the product and all the contracts were signed at the bank with the help of Huaxia staff. 

However, Huaxia has refused to commit to any compensation and said the Zhongding plan was not sold by the bank but by a now former employee. The bank argues that the former employee, Pu Tingting, acted without the permission of Huaxia executives.

Pu was fired on November 25, the same day the earliest repayment of the Zhongding plan was due. Huaxia says she is being investigated by police and the wealth management plan was suspected of fraud.

Pu's husband said it was difficult to believe the bank did not know his wife was selling the wealth plan. 

He said Pu told her branch's president, Jiang Li, about the wealth management product. Under the plan, Tongshang Guoyin Asset Management Co., an investment firm in Beijing, would finance several projects through bank wealth products.

Jiang thought highly of the opportunity, invested 1.7 million yuan in the product himself, and introduced his younger sister and clients to it, Pu's husband said. 

Pu also recommended the wealth management product to her family members and friends, who invested several million yuan in it. 

Investors said the bank touted the Zhongding plan to customers by saying Jiang had invested in it. 

"I asked if there is any risk," one investor said. "They said there was none because 'the bank's president has bought into it, so has his younger sister.'"

The Henan Businessman

Subscription in the Zhongding plan began in late 2011, lasted six months and raised 119 million yuan. Zhongding documents show that all money went to Tongshang Guoyin for four projects tied to a Henan Province businessman named Wei Chenyang. 

But it seems the money never made it to the projects.

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