China Is Said to Plan Curbs on $1 Trillion in Money-Market Funds

(Bloomberg) -- China plans to expand its unprecedented crackdown on financial risk to money-market funds by capping how much investors can redeem in a day, people familiar with the matter said.

The limit for same-day redemption will be set at 10,000 yuan ($1,580), said the people, who asked not to be identified as they're not authorized to speak publicly. The same restriction will apply when investors use their assets in money-market funds directly for payment and consumption, the people said.

Such a move would be the latest tightening by China's policy makers, who are making stability job No. 1 as they work to balance continued expansion with defusing the country's debt bomb. Those efforts culminated in the unprecedented government takeover of Anbang Insurance Group Co. earlier this month, just before President Xi Jinping gathered top cadres for a plenum to select government leaders and a national legislative meeting next week.

The move by regulators brings them into areas once seen as less risky. The country's money-market funds expanded to a total value of almost $1.1 trillion by the end of 2017, up from $680 billion the previous year, according to the Asset Management Association of China.

Read More: How China Is Getting Serious About Financial Risk

“The financial regulatory crackdown is far from over,” Rob Subbaraman, an economist at Nomura in Singapore, said in a note Wednesday. “The unrelenting crackdown on shadow financing, market speculation and corruption has steadily raised the cost of funding and tightened overall financial conditions.”

The People's Bank of China and the China Securities Regulatory Commission didn't respond to faxes seeking comment on the matter Wednesday.

Some Chinese money-market funds allow investors to use the money they hold in the fund directly for purchasing online and in traditional retail stores, such as the Ant Financial-controlled Tianhong Yu'E Bao Money Market Fund, China's largest such entity.

The central bank last year urged Ant, a financial affiliate of Alibaba Group Holding Ltd., to reduce the maximum amount individuals can invest in Yu'E Bao to limit financial market risk, people with knowledge of the matter said in May.

Read More: World's No.1 Money Fund Said to Face Pressure to Cut Inflows

The PBOC revised the statistics methodology for calculating the M2 broad money supply last month to better gauge the scale of money market funds.

To contact Bloomberg News staff for this story: Heng Xie in Beijing at hxie34@bloomberg.net, Yinan Zhao in Beijing at yzhao300@bloomberg.net.

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Will Davies, Jeff Kearns

©2018 Bloomberg L.P.

With assistance from Heng Xie, Yinan Zhao