CHINA should reorganize its wealth management industry as it is unduly raising funding costs and encouraging savers to behave like gamblers by chasing after lucrative short-term returns, a deputy governor of central bank said Saturday.

    In an unusually sharp criticism of the rapidly growing wealth management business, Liu Shiyu said the sector has pushed up funding costs for Chinese firms, causing credit to be unpalatably expensive and distorting its economy.

    “This type of practice, where water is added at every layer and prices are raised in an exploitative way at every link, directly increases costs in the real economy,” Liu said Saturday at Tsinghua University.

    “There is no contribution to labor productivity and it will lead a nation, it will lead a country’s financial system into a short-term behavior that is extreme in its gambling mentality.”

    Liu said wealth managers were lending money to companies at rates of around 14 percent, but often offering rates of only around 8 percent to individuals investing in their funds.

    Fuelled by savers’ and companies’ thirst for higher returns, China’s wealth management sector has exploded in recent years.

    Standard Chartered Bank estimated in January the industry now manages around 11 trillion yuan (US$1.8 trillion) and is growing at an annual rate of 65 percent. (SD-Agencies)