China bars banks from selling commodities-linked products to retail buyers

China's banking regulator has asked lenders to stop selling investment products linked to commodities futures to mom-and-pop buyers, three people with knowledge of the matter told Reuters, to curb investment losses amid volatile commodity prices.
 
It has also asked lenders to completely unwind their existing books for these products, which they manufacture and sell to individual investors, said the sources, who are involved in and have been briefed on the decision.
 
The China Banking and Insurance Regulatory Commission's (CBIRC's) order to exit these products has not been reported before. It issued the order this year, two of the sources said.
 
"The risk contained in banks' commodity-linked investments cannot be easily spotted by ordinary investors, neither can they bear it," one of the sources said. "Banks also don't have enough expertise to run such products properly." The sources spoke on condition of anonymity as the directive is not yet public. The CBIRC, China's top banking watchdog, did not immediately reply to a Reuters email seeking comments.
 
The move comes as runaway commodity prices in both onshore and offshore markets have raised regulatory concerns about the risks of speculative bets, prompting China's state planner and exchanges in recent weeks to take price-control measures. The CBIRC wants to prevent losses like that incurred a year ago by Bank of China (BoC) on crude-oil linked investment products, the people added.

 
It has asked lenders, including Industrial and Commercial Bank of China (ICBC), to report "clean-up progress" on commodities-linked investment products on a monthly basis to regulators, two of the sources said. The CBIRC has, however, not given a specific deadline to the banks for completely exiting their positions, they added. The ICBC did not immediately reply to a request for comment. While the total size of such products in the Chinese banking system is unknown, BoC's $1.8 billion losses tied to just US crude futures highlights the attractiveness of similar products for retail investors looking for higher returns.
 
Regulators are worried mom-and-pop investors may get burnt again by the recent big swings in commodity prices, driven by post-pandemic demand recovery, liquidity easing and speculative trading.
 
Government watchdogs have urged Chinese industrial metal firms to maintain market order.