In recent months, the landscape of financial management in China has taken significant turns, driven by regulatory changes, economic pressures, and market dynamicsTraditionally, banks have relied heavily on deposits as a primary source of fundsHowever, recent trends indicate a shift towards wealth management products as viable alternatives, as deposit rates are expected to undergo further reductions and manual interest payments continue to impact financial strategies.

The regulatory environment has played a crucial role in shaping these trendsRecently, banks in provinces like Shandong, Chongqing, and Hunan that have not established wealth management subsidiaries received directives from regulatory bodies to reduce the scale of their existing wealth management businesses by the end of 2026. This decision marks the beginning of a new round of adjustments to the wealth management sector, highlighting ongoing efforts to enforce compliance with financial regulations.

April's social financing data revealed intriguing insights not only about corporate deposits but also about overall market behavior

Non-financial corporate deposits experienced a remarkable decline, registering a negative growth of 1.87 trillion yuan, owing primarily to non-seasonal factors linked to the aforementioned manual interest payment reformsSimultaneously, household deposits also reflected a downturn, further compounded by previous interest rate cuts prompting what can be referred to as 'deposit migration'—a term signifying the shift of savings from banks to potentially more lucrative investment avenues.

At the end of May 2023, the outstanding scale of bank wealth management products reached approximately 28.98 trillion yuan, an increase of 2.18 trillion yuan from the end of 2022. This rise is significant, coming from the low point observed in late 2022 following a wave of redemptions in wealth management productsThe industry's resurgence can be largely attributed to enterprise deposit disintermediation driven by regulatory adjustments, contributing to a growth trajectory in wealth management offerings.

In contrasting dynamics, banks without wealth management licenses exhibited a slower-than-anticipated reduction in their wealth management scales

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By June, these institutions collectively saw a decrease of 740 billion yuan, which is considerably less than expected in light of the evolving policies aimed at curbing their wealth management operationsDespite the overall market expanding, it appears some regional banks, lacking the requisite licenses, have found it challenging to meet regulatory targets.

Amidst the growing landscape, domestic wealth management subsidiaries showcased considerable asset growthBy the end of 2023, the total assets of these firms were substantially higher compared to the previous year, with notable growth recorded by joint-stock banksSpecifically, certain institutions like Su Yin Wealth Management witnessed extraordinary growth rates exceeding 22.8%, outpacing peers in the competitive market.

However, not all is favorable for these subsidiaries

The trends following the redemption wave in late 2022 led to adjustments in their fare structures, as firms sought to manage costs while enhancing customer appealThis has resulted in what analysts term a “quantity increase, price decline” scenario, where despite asset scaling up, overall profits fell—indicating a challenging landscape for balancing growth with profitability.

When evaluating contributions to organizational profits, wealth management subsidiaries generally contributed less than 5% to their parent banks' bottom linesOnly a few, such as Qing Yin Wealth Management, managed to surpass this threshold significantlyThis brings to light the pressing need for these units to improve their income contributions, particularly as the expectations from their parent firms increase amid rising regulatory scrutiny.

Looking ahead to 2024, the National Bureau of Statistics and the People's Bank of China implemented new accounting methods concerning the financial industry's value-added metrics

This adjustment primarily aimed to refine the accounting for monetary financial services, with a focus on core indicators such as net interest income growthA close examination reveals that while fee income has struggled due to decreased commission rates, asset management revenues remain pivotal for sustained profitability across the banking sector.

Interestingly, the overall revenue landscape for large banks is expected to remain stable despite the corrective measures in placeAn analysis of banks lacking wealth management licenses shows that the proportion of revenue generated from wealth management fees is often minimal, with most banks reporting figures below 3%. This suggests minimal detriment to overall revenue despite regulatory adjustments occurring at a broader scale.

Furthermore, with increasing asset concentration among banks that successfully obtain wealth management licenses, the competitive dynamics of the industry are expected to intensify

This is indicated by a rapidly accelerating pace of wealth management reduction among smaller banks, accompanied by a likely regulatory acceleration in approving new wealth management licenses for larger banking institutions, suggesting a reshaping of the competitive landscape.

As the sector evolves, non-wealth management institutions are projected to witness a continued contraction in their wealth management businessBy the end of 2023, these non-licensed banks accounted for around 19% of the total wealth management scale, compressed by over a trillion yuan since the previous yearThis trend underlines the mounting regulatory pressure driving the sector’s transformation towards a more streamlined and focused structure.

The forthcoming months may see fluctuations in wealth management volumes, particularly influenced by seasonal factors and the pressures bearing on deposit levels

Banks typically confront deposit exam pressures at quarter-end, often prompting adjustments in the allocation of wealth management assetsHowever, there remains an optimistic outlook for the second half of the year, amid lower deposit rates and continued interest in wealth management as a compelling alternative investment vehicle.

In summary, the Chinese banking sector stands at a critical juncture as it navigates regulatory realignments, competitive pressures, and shifting consumer behaviorsThe emphasis on professional management of financial assets, coupled with renewed confidence in wealth management products, not only reflects gradual improvements in market trust but also portends a future where traditional deposit-taking may no longer suffice to meet the complex demands of a modern economyHow banks adapt to this evolving financial landscape will be crucial in determining their long-term viability and success.