Bank of China Warns of Ponzi Schemes

The Ponzi schemes and off-balance sheet loans in China's banking system are in the forefront of today's news. Reuters reports Bank of China executive warns of shadow banking risks

    A senior Chinese banking executive has warned against the proliferation of off-book wealth management products, comparing some to a Ponzi scheme in a rare official acknowledgement of the risks they pose to the Chinese banking system.

    China must "tackle" shadow banking, particularly the short term investment vehicles known as wealth management products, Xiao Gang, the chairman of the board of Bank of China, one of the top four state-owned banks, wrote in an op-ed in the English-language China Daily on Friday.

    He warned of a mismatch between short-term products and the longer underlying projects they fund, adding that in some cases the products are not tied to any specific project and that in others new products may be issued to pay off maturing products and avoid a liquidity squeeze.

    "To some extent, this is fundamentally a Ponzi scheme."