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‘Enforcement storm’ starts in China finance sector

Last week, authorities made initial strikes in what some are calling an “enforcement storm” against illegal bond trading.
Zou Yu, a fund manager at Shanghai-based Wanjia Asset Management, was reportedly detained for suspected involvement in an illegal bond-trading scheme.
There were also reports that bond analyst Xu Dazhu of Shandong-based Qilu Bank was arrested in connection with Zou’s case.
Later, Yang Hui, executive director of fixed-income trading at CITIC Securities Co. Ltd., was detained for allegedly colluding with commercial banks to illegally profit from bond sales.
In addition, insiders claim officials at the “Big Four” banks have been questioned about bond trading activities.
The clampdown produced a surge in bond sales in Shanghai, with some firms reportedly underselling their holdings.
Authorities have also been targeting misconduct surrounding sales of financial products in China’s banks. Last month, the China Banking Regulatory Commission (CBRC) introduced new rules intended to tighten oversight of so-called “wealth management products,” which often amount to opaque short-term investments into China’s shadow banking system.
This month alone, sales staff at the Zhengzhou (Henan Province) branch of CITIC Bank allegedly peddled $6.5 million of unauthorized financial products, according to media reports.
The branch’s former vice director Guo Wenya was arrested for misleading clients into buying wealth management products, and using the proceeds to make illegal loans.
In July 2012, an employee of a CITIC branch in the district of Nanhai (Foshan, Guangdong Province) was arrested for swindling investors out of $32 million. In December 2012 , Wenzhou (Zhejiang Province) authorities arrested a CITIC employee for selling $3.9 million of a fake wealth management product.
More than 30 percent of respondents to a 2012 survey of China bankers said they believed investors were not being properly informed about financial products, and were not being sold products appropriate to the state of their finances.

Sources: The Economic Observer, 163 com (网易), Tencent (腾讯网), Global Times


A version of this post appeared in the China Compliance Digest. For a limited time, subscribers of the China Compliance Digest will receive the China Anti-Corruption Handbook ($750 value) and an individual ethiXbase membership ($695 value) at no extra charge. Details are here.

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