China’s commercial banks are tightening oversight of clients using credit cards to fund stock investments as small-time investors pour in to catch the nation’s $1 trillion market rally.
Lenders including China Minsheng Banking Corp. and Huaxia Bank Co. warned over the past month that credit card funds and cash advances can’t be used for investments among other prohibited areas, according to statements seen by Bloomberg News. Any violations could lead to the transactions being canceled and to restrictions on card use, they said.
The move — a reiteration of a 2022 rule that orders strict control of credit card funds — joins recent curbs by some of the nation’s brokerages and fund houses to cut back on financing and limit stock purchases. Chinese stocks added more than $1 trillion in market value this month alone, with signals from margin trades to volumes all sending red flags on the sustainability of the rally.
It’s unclear whether the recent moves were a result of regulatory guidance. Chinese authorities have a track record of intervening when the market is seen overheated or oversold, to maintain stability in stocks.
Credit card funds are high-cost, short-term debt, which could significantly amplify debt risks if used for stock investments, state-backed Securities Daily said in an editorial Thursday. The report pointed out a fundamental mismatch between the short repayment cycles of credit cards – typically around a month – and the long-term nature of stock market investing.
Speculative trades funded by credit card funds will intensify irrational fluctuations in shares, potentially leading to losses by card holders and failure to repay, the newspaper said. That will create an ultimate disruption of market order and a contagion risk between the stock market and the banking system, which can threaten overall financial stability.
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