Pro-Cyclical: Public Companies Buying WMPs
WMPs are higher-yield, short-term investments typically sold by commercial banks. In the 12 months ending Wednesday, 9,641 publicly traded companies listed on China’s A-share market moved 887.2 billion yuan ($128.5 billion) of capital into such financial products, according to data compiled by Chinese financial information provider Wind. That was a whopping near-46% jump over the same year period ending May 10 of last year.
Six of the A-share listed companies each bought more than 10 billion yuan worth of WMPs. The companies included Tianjin Tianhai Investment Co. Ltd., Yanzhou Coal Mining Co. Ltd. and Beijing Sanyuan Foods Co. Ltd.
…In addition, public companies have been holding substantial amounts of idle cash. In 2016, public companies raised 2.11 trillion yuan through initial public offerings (IPOs) and private offerings to a small number of investors, known as private placements. That was up 31% from a year earlier, according to Wind data. About 58% of the capital that public companies invested in WMPs was raised via such financing channels but had been left “wasted” due to slow business expansion.
Business is bad, but higher returns can be earned from WMPs. Of course, there are risks. From 2014: Chinese Corporate Investors in the Dark as Trust Investments Falter; Borrow Short to Lend Long Strategy Falling Apart in 2014.