Investment default highlights risks in wealth management market (2)

The money raised through the underground private equity went to pawn shops and car dealers in the central province of Henan.

Ma Minghua, 51, planned to buy a wealth management product that matures in six months with an annualized earnings ratio of 5.8 percent, but was persuaded to invest 1.1 million yuan in the illegal fund.

"They (the bank's wealth management managers) said the fund would be invested in high-speed railways and there were no risks at all," Ma told Xinhua.

Police authorities and banking regulators in Shanghai, Beijing and Henan are currently investigating whether this was an illegal fund raising case.

The investment default has sparked concerns on risk control of the country's fast-expanding asset management market. The China Banking Regulatory Commission has held a meeting alerting banks of the potential risks.

"The Huaxia Bank's case shows that in some banks, there are loopholes in internal risk control and supervision and in the meantime, misleading sales are everywhere," said the head of the personal finance department at a local Shanghai bank, who declined to be named. "All this means is that there might be risks lurking in the wealth management products sold at these banks."

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