China Is Playing a $9 Trillion Game of Chicken With Savers

Hers is a common refrain in Asia’s largest economy, where savers have poured $9 trillion into WMPs and similar products on the assumption that they’ll get bailed out if the investments sour. Even after news in February that policy makers are drafting rules to make it clear that state guarantees don’t exist, Yang is undaunted. She says she’ll only withdraw money from WMPs in the unlikely event that they start to suffer losses.

“Cracking down on implicit guarantees is just like curbing home prices,” she says. “It’s something that the government needs to say, but it’s not something they will eventually do.”

Yang’s steadfast faith in bailouts illustrates the dilemma for authorities as they try to reduce moral hazard and improve the pricing of risk in China’s financial system: It may require a major WMP blowup to shake investors out of their complacency, an event that could wreak havoc on banks that increasingly rely on the products for funding.

https://www.bloomberg.com/news/articles/2017-04-10/china-is-playing-a-9-trillion-game-of-chicken-with-investors

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