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Banking Regulators Limit Non Publicly Traded Investments in Shanghai and Hong Kong, Banks Fall on the Rule

“Chinese bank shares tumbled in Shanghai and Hong Kong after the banking regulator tightened rules on wealth-management products and the cabinet called for new measures to deregulate interest rates.

China Citic Bank Corp. (998) fell 6.8 percent to 4.91 yuan as of 1:21 p.m. in Shanghai after dropping by its 10 percent daily limit, and lost 4.7 percent in Hong Kong. China Minsheng Banking Corp. (600016) dropped 7.9 percent in Shanghai and Huaxia Bank Co., which faced customer protests in December, plunged by as much as 10 percent.

The regulator told banks to limit investments of client funds in credit assets that aren’t publicly traded, and to isolate the risks from their operations. Wealth management products increased 56 percent to 7.1 trillion yuan ($1.1 trillion) last year, equivalent to 7.6 percent of total deposits, according to Standard & Poor’s, prompting warnings from regulators and ratings firms that credit risks are rising.

“This is so far the harshest and most concrete tightening measures regarding WMPs,” Yao Wei, Hong Kong-basedChina economist at Societe Generale SA, said in a note. “However, the immediate impact should be manageable to banks, as the banking regulator has been communicating with the major banks about (potential) rule changes for some time.”

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