China’s securities regulator has released new draft rules that will ban securities firms and fund managers from taking part in “channeling,” a controversial practice that helps clients circumvent regulations that restrict what kind of projects they can invest in, Caixin reports.
Channeling has been in the crosshairs of regulators for a while because it increases risk in the asset management industry, which has ballooned to $3.8 trillion in recent years and has also fueled the rise of “shadow banking” in China.
“The channeling business is a business that should be gradually cleaned up,” an official at the CSRC’s Shenzhen office told Caixin.
A typical case of channeling would involve a securities firm acting as an intermediary to help a bank lend money to a borrower that has been banned from seeking further credit from banks, such as local government financing vehicles or real estate developers under financial stress.