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Interaction between wealth Wealth

management
management products and bank products: China’s
shadow banking
deposits: evidence from China’s
shadow banking
Syed Mehmood Raza Shah and Yan Lu Received 13 March 2021
Revised 15 June 2021
School of Finance, Dongbei University of Finance and Economics, Dalian, China Accepted 26 July 2021
Qiang Fu
Institute of Finance and Economics, Central University of Finance and Economics,
Beijing, China
Muhammad Ishfaq
School of Commerce and Accountancy, Minhaj University Lahore,
Lahore, Pakistan, and
Ghulam Abbas
Department of Business Administration, Sukkur IBA University, Sukkur, Pakistan

Abstract
Purpose – Shadow banking has been evolving rapidly in China, with banks actively using wealth
management products (WMPs) to evade regulatory restrictions. These products are the largest constituent of
China’s shadow banking sector. A large number of these products are off-balance-sheet and considered a
substitute for bank deposits. China’s banking sector, especially the small and medium-sized banks (SMBs), uses
these products to avoid regulatory restrictions and sustainability risk in the deposit market.
Design/methodology/approach – This study empirically examined how banks in China, specifically SMBs,
utilize these products on a short and long-run basis to manage and control their deposit levels. This study
utilized a quarterly panel dataset from 2010 to 2019 for the top 30 Chinese banks, by first implementing a Panel
ARDL-PMG model. For cross-sectional dependence, this study further executed a cross-sectional augmented
autoregressive distributive lag model (CS-ARDL).
Findings – Under regulations avoidance theory, the findings revealed that WMPs and deposits have a stable
long-run substitute relationship. Furthermore, the WMP–Deposit substitute relationship was only significant
and consistent for SMBs, but not for large four banks. The findings further revealed that the WMP–Deposit
substitute relationship existed, even after the removal of the deposit rate limit imposed by the People’s Bank of
China (PBOC) to control the deposit rates.
Research limitations/implications – The individual bank-issued WMPs’ amount data is not available in
any database. Therefore, this study utilized the number of WMPs as a proxy for China’s banking sector’s
exposure to the wealth management business.
Practical implications – This research helps policymakers to understand the Deposit–WMP relationship
from the off-balance-sheet perspective. During the various stages of interest rate liberalization, banks were
given more control to establish their deposit and loan interest rates. However, the deposit rates are still way
below the WMP returns, making WMPs more competitive. This research suggests that policymakers should
formulate a more balanced strategy regarding deposit rates and WMPs returns.
Originality/value – This study contributes to the existing literature on China’s shadow banking by
concentrating on the WMPs. This research represents one of the few studies that analyze regulatory arbitrage

JEL Classification — G21, G28, G32, C33

Syed Mehmood Raza Shah wishes to thank Professor Jianjun Li (Dean, School of Finance, Central
International Journal of Bank
University of Finance and Economics, Beijing China) and Dr. Peng Liao (Tsinghua University, Beijing Marketing
China) for their continuous support and guidelines. The authors also thank anonymous reviewers for the © Emerald Publishing Limited
0265-2323
comments and suggestions. DOI 10.1108/IJBM-03-2021-0088
IJBM in terms of the WMP–Deposit relationship. Moreover, the implementation of CS-ARDL panel data models and
multiple data sources makes this study’s findings more reliable and significant.
Keywords Shadow banking, Wealth management products, Deposits, Regulations, Panel data
Paper type Research paper

Introduction
Shadow banking in China has two critical aspects. First, this sector is directly connected with
conventional commercial banks. However, the second aspect is related to the activities initiated
by nonbanking financial institutions. According to Moody’s (2020), as of the last quarter of
2019, the broadly defined shadow banking assets were reported as RMB 59 trillion, relative to
17.3 trillion RMB in 2010. Following the global financial crisis of 2007–2008, shadow banking in
China expanded exponentially, motivated mainly by regulatory arbitrage and lucrative
attributes attached to off-balance-sheet activities. Despite comprehensive regulations imposed
by authorities, this sector has sustained increased growth. In China, shadow banking practices
have risen in the past decade; this sector is not seen as a stigmatized phenomenon but a
contributing factor in fulfilling higher funding needs. China’s shadow banking system has its
unique dimensions; in contrast with developed countries, shadow banking in China is taking
place under a conventional banking system (Allen and Gu, 2020).
In this study, we examine the bank-issued wealth management products (hereafter
WMPs), which are considered the leading contributors to China’s overall shadow banking.
The banks-issued WMPs are seen as a competitive alternative to the deposits of commercial
banks. These products have fixed maturities and higher yields as compared to the
conventional deposit rates. In principle, these WMPs reach potential customers through
banking channels. The WMPs share almost all the characteristics of a fixed deposit. However,
surprisingly in China, regulators are hesitant to treat them as deposits because most of these
products are nonguaranteed and off-balance-sheet.
The Chinese government had unveiled an RMB 4 trillion fiscal stimulus package during
the global financial crisis (GFC) of 2007–2008 to boost China’s economic development. The
four large banks largely carried out and implemented this stimulus package. During that
time, Chinese regulatory authorities placed a cap on the loan-to-deposit ratio that limited
banks from lending more than 75% of their deposits. The four large banks increased their
deposit levels vigorously to manage and maintain the loan-to-deposit ratio. Consequently,
small and medium-sized banks (hereafter SMBs) faced immense pressure in the deposit
market and began to face difficulties raising their deposit levels. As the deposits were getting
harder to achieve the significant levels, the SMBs started relying on the WMPs’ funding.
During the sample period, China’s central bank, that is, the People’s Bank of China (PBOC), set
a ceiling on the bank deposit rates. Conversely, there is no limit or ceiling on the yields of
WMPs; even these products have higher yields compared to the deposit rate, which makes
them a competitive substitute for deposits. However, the deposit rate ceiling policy was
abandoned at the end of 2015.
Using quarterly data of the top 30 banks of China, where the sample period ranges from
the first quarter of 2010 to the last quarter of 2019, we first perform a panel ARDL-PMG
model. After the approval of cross-sectional dependence from diagnostic tests, this study
further implements a cross-sectional augmented autoregressive distributive lag (CS-ARDL)
model to investigate the long and short-run relationship between deposits and WMPs. Four
important conclusions are drawn from this study. First, consistent with our hypothesis,
China’s commercial banks have a stable long-run substitute relation with WMPs. Second, this
substitute relationship is persistent even after removing the deposit rate ceiling introduced
by PBOC to control the deposit rates. Third, to avoid sustainability risk in the deposit market,
SMBs remain heavily reliant on the issuance of WMPs. This study found a significant long-
term WMP-Deposit relationship for SMBs, but no such relationship was found for large four Wealth
banks. Fourth, spread (between WMPs yield and deposit rate) and profitability are among management
other contributing factors. Lastly, in light of these results, China’s banking data supported
the “regulation avoidance theory.”
products: China’s
This study contributes to the developing literature on shadow banking in China by providing shadow banking
an empirical analysis of the long and short-run relationship between deposits and other
contributing factors with the issuance of WMPs. In this study, the first section contains the
introduction. The second section covers the shadow banking overview; the third section
comprises methodology and data. The fourth and fifth sections present the results and discussion.

Shadow banking and institutional background

Shadow banking in China
In a broader context, shadow banking mainly refers to the nonbank financial institutions
involved in loan transformation and securitizing long-term loans, such as mortgages and
short-term financial instruments (Acharya et al., 2013; Wu and Shen, 2019; Pozsar et al., 2012).
Also discussed by Irani et al. (2020), shadow banking is characterized in general terms as any
form of credit intermediation beyond the traditional or regulated financial system. Over the
last decade, China’s shadow banking has been rising, guided mainly by regulatory
arbitration and limitations on specific sectors to access the required financing. China’s
shadow banking industry continued to expand, while regulators always tried to limit and
regulate their operations, as shadow banking could risk the overall financial and banking
system (Allen and Gu, 2020).
Since 1990, the development and inclusion of intermediary institutions began from outside
the formal financial system. Multiple concepts and interpretations have emerged for shadow
banking. The emergence of these unconventional parallel intermediary institutions has
drawn the attention of scholars and policymakers around the world. The specific research-
oriented projects and studies were initiated by international financial management firms,
supervisory organizations and institutions.
In Western economies, unregulated nonbank financial institutions that provide liquidity
to the financial system are regarded as shadow banking entities. However, Chain’s shadow
banking has a different definition and unique dimensions. According to State Office (2013),
shadow banking in China can be classified into three groups. The first group includes
“unregulated financial institutions without financial services license,” while the second group
contains “intermediaries managed with fewer regulations and do not have financial service
license.” The last and third group comprises “fully licensed and regulated financial
institutions but involve in the unregulated or poorly regulated business, such as asset
securitization, money market funds and most importantly wealth management products.”
Li et al. (2014) also corroborated that China’s shadow banking sector is not dominated by
complicated financial products such as “asset-backed securities (ABS) or mortgages.” The
concept of shadow banking in China is incomparable with the prevailing definition in other
countries because China’s banking system plays a vital role in shaping shadow banking
activities. In contrast to shadow banking in the USA, Chinese shadow banking is primarily
dominated by commercial banks. On the contrary, US shadow banking is based on financial
markets and wholesale financing. A typical Chinese shadow banking operation involves fully
regulated commercial banks, in which a shadow trust or shell company is created to move
savings and lending business off-balance-sheet (Gabrieli et al., 2018).

Regulation arbitrage, deposits and WMPs

The WMPs are seen as a significant contributor to China’s overall shadow banking structure.
These are deposit-like fixed-term products, with two important types of WMPs. First, the
IJBM principal guaranteed WMPs, with principal amount and yields guaranteed. These are on the
balance sheet products, and regulatory authorities treat them as regulated products;
Secondly, totally off-balance-sheet nonguaranteed wealth management products (NG-
WMPs). Their principal amount and yields are not guaranteed, and there is no ceiling on their
yields; these attributes make them a critical item for China’s Shadow banking. Banks in China
issue a large number of nonguaranteed WMPs compared to guaranteed WMPs, and these
NG-WMPs serve as a regulation avoidance tool.
The off-balance-sheet “(OBS) development theory” is considered vital in terms of off-the-
book activities. According to this theory, “over-time commercial banks develop OBS to bypass
the regulations set by regulatory authorities” (Baer and Pavel, 1988; Pavel and Phillis, 1987;
Pennacchi, 1988). In terms of China’s OBS items, WMPs are considered the leading
contributors. These WMPs remained the focus for China’s banking sector to chase profits and
eliminate their doubtful and toxic assets (Shah et al., 2020; Tan, 2017; Wei, 2015). Overall, these
products are significantly helping Chinese banks to fulfill their on-and-off-balance-sheet needs.
Wang et al. (2019) further explained that WMPs are helping the Chinese economy by providing
social credit outside the conventional banking system, and these products also have a
connection with the policies of interest rate liberalization. As discussed by Lu et al. (2020) that
due to the financial inclusion in China, small and private financial institutions were able to join
the mainstream banking market. However, these SMBs still have many limitations regarding
their operations, limited network of branches and deposit raising capacity.
Another vital aspect of WMPs was explored by Chen et al. (2020), Hachem (2018) and
Hachem and Song (2017) that the rise in shadow banking in China’s banking sector is
connected with regulatory arbitrage. During the global financial crisis (GFC) of 2007–2008,
the Chinese government initiated an RMB 4 trillion fiscal stimulus plan to boost the country’s
economic activities. This stimulus plan was mainly executed and implemented by the large
four banks.
During that period, there was also a limit of 75% on loan-to-deposit ratios (LDR) from
Chinese regulatory authorities. As a result, these large four banks aggressively raised their
deposit levels to control and maintain their loan-to-deposit ratios. Consequently, SMBs
started problems with raising the deposit levels. Due to the growing difficulty in maintaining
and raising the deposits, the SMBs started relying on WMP funding (Chen et al., 2020).
Li and Liu (2019) studied that the Chinese government followed a patient and progressive
policy in the context of interest-rate liberalization. It took much longer to liberalize deposit
rates. As China had no deposit insurance program until 2015, the government was cautious
about the deregulation of deposit rates to curb irrational competition between banks. The
PBOC abolished the deposit rate floor in 2004, but banks could not provide higher deposit
rates to boost their market share until 2012. For about eight years, the PBOC benchmark rate
was the deposit rate ceiling. The deposit rate ceiling was increased to 120% of the benchmark
rate in 2014. The PBOC accelerated the pace of liberalization of the deposit rate in 2015. In
March, the deposit-rate limit was increased to 130% and in May to 150% of the benchmark
rate, respectively. On October 23, 2015, the PBOC abolished the deposit rate ceiling to imply
that China’s retail and lending rates liberalization was completed.
The deposits remained under the influence of China’s continuous interest rate
liberalization policy; as Kwan (2003) explored, the deposits-to-assets ratio (DAR) calculates
the size of the assets financed by public deposits. The author further explained that the
deposit-to-asset ratio examines how banks with huge deposits sustain extra operating
expenses. The higher the overall debt-to-deposit ratio, the lower the average liquidity risk
since retail deposits are less vulnerable to a change in interest rates or a slight decline in bank
business relative to purchased funds. Moreover, issuance of WMPs can be seen in two
directions: (1) these products help banks conceal the credit and investment risk, (2) issuance of
these products also contributes to the greater systemic risk. The poststimulus surge in WMPs
issuance by SMBs was connected to the intensified competition in the local deposit market. Wealth
Both large four and SMB banks observed different levels of credit expansion. There are two management
shadow banking prompting events in China’s perspective, which led to a rise in WMPs’
issuance. First, as the stimulus package was implemented mainly by four large banks, they
products: China’s
utilized various channels to aggressively maintain deposit levels due to the LDR limit. shadow banking
Second, due to the large four banks’ aggressive behavior in the local deposit market, SMBs
found themselves in a difficult situation to manage their appropriate deposit level. As a result,
the SMBs issued an intensified number of WMPs to address their deposit-related
complications. WMPs became a substitute for deposits primarily because these products
are without the regulatory limit and offer higher returns (Acharya et al., 2020).
As discussed above, the studies provide evidence that shadow banking in China is mainly
driven by regulatory arbitrage, and WMPs are playing a vital role in shaping this sector. The
existing literature has mostly shown that Chinese banks have a unique relationship with off-
balance-sheet activities, especially with WMPs. The deposits and WMPs have a significant
and strong relationship; furthermore, the deposit rate and ceiling on deposit rate significantly
impact the WMPs issuance. Based on this reviewed literature, this study empirically
examined the long and short-term relationship between deposits (along with other
contributing factors) and WMPs’ issuance.

Theoretical framework
The bank-issued WMPs are viewed as an instrument to circumvent regulatory restrictions
imposed by the authorities. The NG-WMPs are regarded as an alternative option for bank
deposits. The dynamics of the time series support the idea that WMPs and deposits have a
substitute relationship. After the fiscal stimulus plan of 2008, deposit raising became more
difficult for the SMBs; WMPs helped banks raise their deposit levels. Conversely, four large
banks were the leading initiators of the fiscal package, and their deposit funding was secure.
The large four banks’ level of growth in WMPs was lower than the SMBs. We hypothesize
that WMPs and deposits have a long-term substitute relationship, along with spread (the
difference between three-month WMPs yield and deposit rate), profitability and LDR. We also
hypothesize that this WMP–Deposit long-term relationship is more prominent and
significant for SMBs than big four banks.
As discussed by Baer and Pavel (1988), Pavel and Phillis (1987) and Pennacchi (1988), the
“regulation avoidance theory argues that commercial banks have an incentive to develop
off-balance-sheet (OBS) items to bypass specific regulations developed by regulatory
authorities.” As compared to developed economies, “OBS in China has long-run substitute
relation with important on-balance-sheet items,” while growth in OBS is influenced by the
bank’s own risk and returns considerations, operating efficacy and creditworthiness
(An and Yu, 2018). Overall, continuous financial reforms have dramatically changed the
banking system in China. However, China’s profit-seeking banks have been looking to find a
way to increase their profits and lower costs (Yang et al., 2019). Generally, the regulations are
related to the balance sheet activities, which give banks the incentive to look for off the
balance-sheet side to avoid the regulations. WMPs serve this purpose very well; as
previously discussed, these are deposit-like products but with fewer regulations. More
specifically, NG-WMPs help banks disappear from the regulatory radar and hide their toxic
assets’ real risk. The sample used in this study contains 78% off-balance-sheet NG-WMPs
out of total WMPs. This higher percentage of NG-WMPs indicates that China’s banking
industry relies heavily on these products to avoid regulations and use them as a substitute
for deposits in the long run.
There was a statutory ceiling on the bank deposit rates set by the PBOC during our sample
period, which changed over time but mainly remained under the market rate. On the other
hand, the yields on the WMPs were higher than the conventional deposit rate. WMPs became
IJBM the substitute for deposits because their interest rates have no regulatory limit; these
products also promise higher returns than conventional deposit rates, making them more
competitive and lucrative. China’s central bank abandoned this deposit rate ceiling policy at
the end of 2015 [1], but the deposit rates are controlled mainly by its window guidance and a
market interest rate pricing and self-discipline mechanism (Acharya et al., 2020).
On average, during our sample period, the DAR for SMBs mainly stayed below 70%, with
the highest and lowest values of 75% and 58%, respectively. Conversely, the reported DAR
reported well above 70% for the large four banks, with the highest and lowest 82% and 72%
values, respectively. Furthermore, SMBs found it challenging to raise their deposit levels than
large four banks. Due to the vast branches across China, the large four banks enjoy a far
stronger deposit market status than all other smaller banks. As a result, SMBs are likely to
suffer from deposit losses in the competition for funding to avoid sustainability risk. The
regulatory ceiling on deposit rates created extra pressure on the SMBs to manage and raise
their deposits. The intensified competition in the local deposit markets arising from the
stimulus package and credit growth of large four banks had a direct influence on SMBs,
causing them to issue an additional number of WMPs to generate deposits. WMPs are
considered as a competing alternate option for SMBs to avoid sustainability risk. So, SMBs
shifted their emphasis more toward the WMPs to sustain in the deposit market. Lastly, a
spread between three-month WMPs yield and deposit rate also plays an essential role in the
issuance of WMPs. The spread is considered a signal to the potential investors in the long run,
as WMP yields always experienced an increasing trend.

Data and methodology

Data and descriptive statistics
This study employed a diversified sample of the top 30 Chinese banks. These banks comprise
70% of China’s total banking assets, and they are also the leading issuers of WMPs. The
sample of these 30 banks consists of four major types; “Big4 or large four state-owned
commercial banks [2], joint-stock commercial banks (JSCBs), city or urban commercial banks
(CCBs), rural commercial banks (RCBs).” This study categorized four large banks as Big4
banks and the other 26 banks as SMBs over the sample period start from the first quarter of
2010 to the last quarter of 2019. The data was collected from diverse sources; for bank-related
variables and financial ratios, this study utilized the WIND financial database, a trusted and
top financial database in China. The Bloomberg and periodic financial reports were also used
to validate the data and overcome any missing observations’ potential issues. For WMPs,
this study also utilized the WIND database, which has the WMPs’ details such as date of
issuance, type and return of the product, maturity information, underlying assets and the
issuing bank’s details. The number of WMPs is considered a suitable proxy for China’s
banking sector’s exposure to the wealth management sector. As empirically analyzed by Cai
et al. (2019) and Luo et al. (2019), the individual bank-issued WMPs’ amount data is not
available in any database. The sample in this study contains 315,894 nonguaranteed and
403,036 total.
Panels A and B of Table 1 present the summary statistics and correlation matrix,
respectively. The Panel A of the descriptive statistics reports that NG-WMPs are the
significant contributors, with an average value of 254.6 (comprising 78% of the total number
of WMPs). The average DAR was 66.72%, which indicates that the Chinese banking sector
maintained a good DAR during the sample period. The second portion of the table presents a
correlation matrix, which shows that the NG-WMPs and DAR show a negative relationship,
which proves our earlier discussion that NG-WMPs and deposits have a substitute
relationship. Simultaneously, spread and profitability show a positive correlation with NG-
WMPs and the total number of WMPs.
Variables N Mean SD min Median max
Wealth
management
Panel A: Summary statistics
NG-WMPs 1,200 254.66 425.649 0 110 3,789
products: China’s
T-WMPs 1,200 325.239 467.393 0 160.5 3,892 shadow banking
DAR% 1,200 66.722 9.328 41.994 66.535 91.398
Spread 1,200 2.203 0.945 0.003 2.399 4.658
ROA 1,200 1.088 0.24 0.37 1.088 1.852
LDR 1,200 69.965 11.179 35.925 69.74 110.992

Variables NG-WMPs T-WMPs DAR Spread ROA LDR

Panel B: Correlation matrix

NG-WMPs 1.000
T-WMPs 0.919 1.000
DAR 0.165 0.194 1.000
Spread 0.425 0.344 0.446 1.000
ROA 0.013 0.004 0.426 0.307 1.000
LDR 0.211 0.245 0.349 0.247 0.193 1.000
Note(s): The reported are “summary statistics in Panel A and correlation matrix in Panel B.” NG-WMPs are
nonguaranteed WMPs; T-WMPs are the total WMPs (containing guaranteed and non-guaranteed WMPs); Table 1.
DAR is deposit-to-assets ratio; the spread is the difference between WMPs yields and deposit rate; ROA is the Summary statistics
return on assets; LDR is the loan-to-deposit ratio and correlation matrix

Empirical model
The effect of the DAR and other variables on WMPs’ issuance is estimated using the top 30
Chinese banks’ data from the first quarter of 2010 to the last quarter of 2019. The baseline
regression equations are:
LðNG WMPÞit ¼ βo þ β1 DARit þ β2 Spreadit þ β3 ROAit   
(1)
þ β4 LDRit þ β5 Deposit ceillingt þ εi;t
LðT WMPÞit ¼ βo þ β1 DARit þ β2 Spreadit þ β3 ROAit    þ β4 LDRit
(2)
þ β5 Deposit ceillingt þ εi;t

The dependent variables are noncapital guaranteed WMPs and total WMPs issued by the
bank, i represents the number of banks, t denotes time, ε is the error term as expressed in
equations (1) and (2), respectively. β1 ; β2 ; β3 ; β4 ; and β5 are coefficients of debt-to-assets
ratio (DAR), spread (the difference between the three-month yields on WMPs and deposit
rate), return on assets (ROA), LDR and deposit ceiling (dummy variable for policy
implications, by assigning 0 to the period before the deposit rate ceiling and 1 to the period
after), respectively. This study used log-transformed variables, as log-transformation is
endorsed for data normality and further helps to avoid the data’s potential sharpness
(Changyong et al., 2014; Gabrieli et al., 2018).
Subsequently, this study proceeds by adopting the MG and PMG estimators under panel
ARLD, and in the next stage, implemented the cross-sectionally augmented autoregressive
distributed lag (CS-ARDL) model as developed and modified by the Chudik et al. (2013) and
Chudik and Pesaran (2015), executed by the Ditzen (2019). This estimation method allows for
cross-sectional dependence, robustness, supports both balanced and unbalanced panels, and
performs well even if variables are stationary at different levels. This estimation method
becomes most suitable for this study because of the banks’ heterogeneous nature included in this
sample. Additionally, it allows for estimations of long and short-run effects. A panel ARDL
framework can be explained in the context of following estimators and set of equations.
IJBM Consider an ARDL model as follows:
Yit ¼ ai þ γ 1 Yi;t−1 þ βi Xit þ uit (3)

Where, i ¼ 1; 2; 3; . . . ; N t ¼ 1; 2; 3; . . . ; T
MG-estimator. A mean group or MG estimator has the least restrictive procedure by
allowing all parameters’ heterogeneity when no cross-N restriction is imposed.
For long-run parameter θt, MG estimator for the whole panel is given as follows:

βi
θt ¼
1  γi
(4)
b 1 XN
1 XN
θ¼ θi b
a¼ ai
N i¼1 N i¼1

PMG estimator. The unrestricted specification for the ARDL (p, q) model contains p as the
dependent variable y i;t and q as regressors X i;t −1 lags, respectively. For t ¼ 1; 2; . . . ; T,
and i ¼ 1 . . . ; N, is:
Xp X
q
yit ¼ λij yi;t−j$ þ γ ij xi;t−j þ μi þ εit (5)
j¼1 j¼1

where “xi;t−j is the (k 3 1) vector of the explanatory variables for group i and μi represents
fixed-effect. Under pooled mean group (PMG) estimator,” based on Pesaran et al. (1999), the
dynamic heterogeneous panel ARDL model can also be reparametrized as a VECM system:
  Xp−1 X
q−1
Δyit ¼ θi yi;t−1  β0i xi;t−1 þ λij Δyi;t−j þ γ 0ij Δxi;t−j þ μi þ εit (6)
j¼1 j¼1

Where the β0iis the long-run parameters and θi is the equilibrium or error-correction
parameter. For convergence in the long-run equilibrium, θi must be negative and significant.
If θi 5 0, there would be no basis for a long-run relation. As under previous assumption
variables display return to long-run equilibrium, this function is expected to be strongly
negative. The PMG restriction can be explained as the elements of β0i are common across N,
while dynamics and the ECM terms are allowed to fluctuate in PMG.
Cross-sectional autoregressive-distributed lag (CS-ARDL). In the panel ARDL model, an
efficient estimator was needed to allow heterogeneity and cross-sectional dependence, which
would estimate the long and short-run coefficients under dynamic models. As discussed, and
developed by Chudik et al. (2013) and Chudik and Pesaran (2015), to control “the cross-
sectional dependence by using cross-sectional averages [3], equation (5) is extended to an
econometric model of cross-sectional augmented autoregressive distributive lag (CS-ARDL),”
the equation for the model is expressed as follows:
X
Py X
Px X
PT
yi;t ¼ ai þ λl;i yi;t−1 þ βl;i Xi;t−1 þ γ 0i;l zt−1 ei;t (7)
l¼1 l¼0 l¼0

The cross-sectional averages are represented as follows;

 
zt−1 ¼ yi;t−l ; xi;t−l (8)
The long-run coefficients are calculated as: Wealth
Ppx
b management
b l¼0 βl; i
θCS−ARDL; i ¼ Ppy (9)
1  l¼1bλl; i products: China’s
shadow banking
Procedure of analysis. A concern with panel data with cross sections and time dimensions
is the possible existence of cross-sectional dependence of the error terms. It is crucial to
examine the “cross-sectional dependence” and its nature while analyzing the panel data.
Ignoring cross-sectional dependency poses severe repercussions. Panel datasets frequently
demonstrate substantial cross-sectional dependency, “which may occur due to the prevalence
of common shocks and unobserved elements” (De Hoyos and Sarafidis, 2006). This study
utilized the cross-sectional dependence CDLM test as developed by Breusch and Pagan (1980),
a scaled version of “the LM test” as proposed by the Pesaran (2004), bias-corrected scaled LM
test as explained by Baltagi et al. (2012) and lastly, a Pesaran CD test. All these cross-sectional
dependence tests have the null hypothesis of “cross-sectional independence,” while an
alternate hypothesis is “cross-sectional dependence.”
In the presence of cross-sectional dependence, first-generation unit root tests cannot be
executed (Ameer et al., 2020). During the implementation of the unit root tests, “cross-sectional
dependence” cannot be ignored; otherwise, the estimates would be biased. Therefore, this
study adopted an extensively used “second-generation unit root test under the possible cross-
sectional dependency.” As discussed by Pesaran (2007), the second-generation unit root test,
namely Pesaran’s cross-sectional augmented Dicky–Fuller (CADF) procedure, allow for
cross-sectional dependence in the panel data series, and adoption of this unit-root test further
strengthens the reliability of the results (Hasan, 2019; Shariff and Hamzah, 2015; Zhang
et al., 2020).
The panel dynamic heterogeneous regression ARDL model was executed by using three
distinct estimators. The mean group (MG) as developed by Pesaran and Smith (1995), the
pooled mean group (PMG) estimators developed and explained by Pesaran et al. (1999) and
the dynamic fixed-effects estimator (DFE) [4]. All three estimators consider the long-run
equilibrium and the dynamic adjustment process’s heterogeneity and are computed by
maximum likelihood (Ahmed, 2020; Samargandi et al., 2015). For cross sections having “large
N and T,” the MG estimator usually yields consistent parameter estimates. Conversely, the
“PMG estimator” gives more robust estimates; if the homogeneity assumption remains valid,
PMG is more suitable for consistency and efficiency.
Furthermore, “under the MG estimator, all related parameters (i.e. bank-specific intercept
terms, error variances, and long and short-run slopes) are allowed to vary cross-sectionally,
which means there is no limitation on cross-section homogeneity” (Ahmed, 2020). It involves
“estimating N time-series regressions” and then determining the bank-specific coefficients
with unweighted averages. Conversely, PMG combines coefficient pooling and averaging.
Unlike MG, it applies a limitation of cross-sectional homogeneity on the coefficients of a long-
run slope. The PMG estimator also allows bank-specific intercepts, error variances and short-
run slopes to vary cross-sectionally. Using the Hausman test procedure, the suitability of both
MG and PMG estimators is tested under the null hypothesis of “no substantial difference
between the long-run coefficient estimates of MG and PMG” (Hausman, 1978). If the Hausman
test fails to reject the null hypothesis, this would lead to the rejection of the “homogeneity
assumption,” and the PMG estimator would be selected over the MG [5].
As discussed earlier, in the presence of cross-sectional dependence, MG and PMG
estimators would produce biased results. In the panel ARDL econometric literature, the issue
of error cross-sectional dependency was mainly discussed in panel data models without
lagged dependent variables. For example, the approach of common correlated effects (CCE)
by Pesaran (2006) and the interactive fixed-effects estimator (IFE) as explained by Bai (2009).
IJBM However, exceptional work by Chudik and Pesaran (2015) extended the CCE approach, which
allows for lagged dependent variables, coefficient heterogeneity and weak exogenous
regressors. This procedure is based on estimating unit-specific panel ARDL specifications,
adequately augmented by cross-sectional averages, to filter out the effects of unknown
common factors from which long-term effects can be estimated indirectly (Chudik et al., 2016).
Therefore, this study implemented the CS-ARDL model to deal with cross-sectional
dependency issues, as proposed by Chudik et al. (2013) and Chudik and Pesaran (2015). The
CS-ARDL is the latest econometric technique, which is considered superior in the presence of
cross-sectional dependency, heterogeneity and mix-order of integration at I(0) and I(1) levels.
This econometric model efficiently estimates the long and short-run coefficients as compared
to the conventional ARLD model.

Results
Cross-sectional dependence and panel unit root testing
Table 2 presents the results for cross-sectional dependence tests. This study considers the
outcomes of the Breusch–Pagan LM test, Pesaran scaled LM test, bias-corrected scaled LM
test and Pesaran CD test for investigating contemporaneous correlation across banks. All the
results show that each series in the panel exhibits the cross-sectional dependence by rejecting
the null hypothesis of no cross-sectional dependence at a 1% significant level.
In the presence of cross-sectional dependence, first-generation unit root tests cannot be
executed. Therefore, this study has implemented the second-generation panel unit root CADF
procedure proposed by Pesaran (2007). The test is performed with both constant and trend
separately. The results reported in Table 3 show that variables have a mix-order of

NG-WMPs T-WMPs DAR Spread ROA LDR

*** *** *** *** ***
Breusch–Pagan LM 6356.75 5881.52 7831.17 13246.14 7965.83 7407.24***
*** *** *** *** ***
Pesaran scaled LM 200.76 184.65 250.75 434.33 255.31 236.38***
Bias-corrected scaled LM 200.38*** 184.26*** 250.36*** 433.95*** 254.93*** 235.99***
Pesaran CD 60.54*** 56.26*** 73.34*** 114.37*** 79.89*** 59.36***
Note(s): This table presents the results of four tests for cross-sectional dependence. Where NG-WMPs and
Table 2. T-WMPs are nonguaranteed and total wealth management products, respectively. DAR 5 deposits-to-assets
Cross-sectional ratio, spread 5 difference between WMPs yields and deposit rate, ROA 5 return on assets, LDR 5 loan-to-
dependence tests deposit ratio. *** shows the significance level at a 1% level

With constant With constant and trend

Variables Zt-bar P-value t-bar Zt-bar P-value t-bar

NG-WMPs 2.732 0.003*** 2.239 1.852 0.032** 2.638

T-WMPs 3.735 0.000 ***
2.411 2.109 0.017*** 2.679
DAR 3.917 0.000*** 2.442 2.713 0.003*** 2.776
Spread 9.089 0.000 ***
3.330 7.561 0.000 ***
3.555
ROA 3.990 0.000 ***
2.455 3.648 0.000 ***
2.926
LDR 0.348 0.364 1.830 0.269 0.394 2.383
Note(s): Where NG-WMPs and T-WMPs are nonguaranteed and total wealth management products,
respectively. DAR 5 deposits-to-assets ratio, spread 5 difference between three-month WMPs yield and
Table 3. deposit rate, ROA 5 return on assets, LDR 5 loan-to-deposit ratio. For Pesaran CADF test, “the critical values
Second generation are 2.30, 2.160 and 2.080 at 1%, 5% and 10% with constant, and 2.780, 2.650; while, 2.580 at 1%, 5%
panel unit root Pesaran and 10%, respectively, with constant and trend.” *p < 0.1 **p < 0.05 ***p < 0.01 represent the significance
CADF test levels respectively
integration at I(0) and I(1) levels. All the variables are found stationary at the level, excluding Wealth
the LDR, which also becomes stationary at the first difference level. In summary, the results management
confirm the integration of individual series either at I(0) or I(1), but not I(2), and the presence
of cross-sectional dependency.
products: China’s
shadow banking
Panel PMG-ARDL results
Table 4 presents the results for the autoregressive distributed lag ARDL (p,q) model by
emphasizing the exclusive features of the PMG model over the other error-correction-based
estimations. The Hausman test results confirmed that PMG is a consistent and efficient
estimator than MG and DFE estimation. Although panel ARDL-PMG estimation results
support our hypothesis in the long-run relationship, PMG estimator results are no longer
reliable after the confirmation of cross-sectional dependence. For further robustness, this
study applies a panel CS-ARDL model, which is considered as a remedial estimation method
in the presence of cross-sectional dependence and mix-order of integration at I(0) and I(1)
levels. This estimation model also allows capturing the long and short-run coefficients.

CS-ARLD empirical results

Based on the CS-ARDL model, Table 5 presents the results for the long and short-run
relationship between deposits and two dependent variables, that is, nonguaranteed and total
WMPs in columns (1) and (2), respectively, along with other explanatory variables. All the
variables are measured at the end of each quarter when banks disclose their financial
information. Both baseline models have significantly good explanatory power, contain nearly
all variables with significant signs. For both NG-WMPs and total-WMPs, according to long
and short-run results, the coefficients of the DAR were found to be jointly significantly
negative at 1% and 5% significant levels, respectively. In terms of economic magnitude, in
the long run, a 1% decrease in the DAR would lead to a 11.8% and 11.6% increase in the NG-
WMPs and total WMPs, respectively.

(1) (2)
PMG nonguaranteed WMPs PMG total WMPs

Long-run
DAR 0.630*** (0.093) 0.300*** (0.102)
Spread 0.185*** (0.051) 0.397*** (0.055)
ROA 0.253*** (0.081) 0.219*** (0.074)
LDR 0.216*** (0.083) 0.221*** (0.072)
Dum-DCP 0.618*** (0.133) 0.367*** (0.132)
ECT 0.244*** (0.038) 0.194*** (0.036)
Short-run
DAR 0.012 (0.135) 0.044 (0.084)
Spread 0.082 (0.068) 0.002 (0.049)
ROA 0.094* (0.057) 0.091* (0.054)
LDR 0.169* (0.098) 0.044 (0.080)
Dum-DCP 0.025 (0.092) 0.098 (0.074)
Cons 1.090*** (0.180) 0.942*** (0.170)
Obs 1,170 1,170
Hausman test (MG vs PMG) χ 2(5) 5 9.21 Prob > χ 2 5 0.10
Note(s): This table shows the PMG-ARDL model results for all sample banks, from the first quarter of 2010 to
the last quarter of 2019, where columns (1) and (2) contain the first dependent variable, nonguaranteed wealth
management products and total WMPs, respectively. DAR 5 dept-to-assets ratio, spread 5 difference between
three-month WMPs yield and deposit rate, ROA 5 return on assets, LDR 5 loan-to-deposit ratio, Dum- Table 4.
DCP 5 dummy variable for policy implications, by assigning 0 to the period before the deposit rate ceiling and 1 The PMG-ARDL model
to the period after. Standard errors are presented in the parenthesis***p < 0.01, **p < 0.05, *p < 0.1 (all banks)
IJBM (1) (2)
Dependent variable non-guaranteed-WMPs Dependent variable Total-WMPs

Long run
DAR 0.118** (0.057) 0.116*** (0.041)
Spread 0.139*** (0.040) 0.084*** (0.031)
ROA 0.105* (0.062) 0.055 (0.059)
LDR 0.179** (0.087) 0.174*** (0.060)
Dum-DCP 0.244** (0.095) 0.153** (0.064)
ECT 0.437*** (0.046) 0.368*** (0.040)
Short run
DAR 0.176** (0.089) 0.179*** (0.064)
Spread 0.221*** (0.057) 0.123*** (0.038)
ROA 0.152* (0.089) 0.091 (0.081)
LDR 0.214* (0.110) 0.212*** (0.074)
Dum-DCP 0.350*** (0.123) 0.216**(0.087)
Obs 1,140 1,140
Note(s): This table reports the cross-sectional autoregressive-distributed lag (CS-ARDL) model, for all sample
Table 5. banks, from the first quarter of 2010 to the last quarter of 2019, where columns (1) and (2) contain the first
Cross-sectional dependent variable, nonguaranteed wealth management products and total WMPs, respectively. DAR 5 dept-
autoregressive- to-assets ratio, spread 5 difference between three-month WMPs yield and deposit rate, ROA 5 return on
distributed lag (CS- assets, LDR 5 loan-to-deposit ratio, Dum-DCP 5 dummy variable for policy implications, by assigning 0 to the
ARDL) results for period before the deposit rate ceiling and 1 to the period after. Standard errors are presented in the
all banks parenthesis***p < 0.01, **p < 0.05, *p < 0.1

Discussion
The results indicate that WMPs and deposits exhibit a stable long-run substitute relation.
Acharya et al. (2020) also found the same substitution relationship between deposits and
WMPs. This substitution effect between deposits and WMPs proves our earlier discussion
that China’s banking sector utilized these products as a substitute on both long and short-run
basis. The NG-WMPS are off-balance-sheet and considered an essential item in China’s
shadow banking. This substitute relationship further confirms that the banking industry
found the issuance of WMPs (especially NG-WMPs) lucrative enough to solve their on-
balance-sheet complications, as banks use them to manage and control their deposits. An and
Yu (2018) have also obtained a similar substitution effect in terms of off-balance-sheet items
(OBS). All the results and the presence of a substitute relationship between deposit and
WMPs further support “regulation avoidance theory.”
Similarly, coefficient estimates of deposit-rate ceiling policy (dummy variable for policy
implications, assigning 0 to the period before the deposit rate ceiling and 1 to the period after)
are statistically positive and significant. China’s central bank, that is, PBOC, imposed a
ceiling on the bank deposit rate; the rate changed over time but always remained below the
SHIBOR (Shanghai Interbank Offered Rate). The PBOC abandoned this deposit rate ceiling
policy at the end of 2015. Despite the removal of the deposit rate cap, the yields on the WMPs
were higher than deposit rates. Our results further confirm that even after removing the
deposit rate ceiling, the substitution effect between WMPs and deposits remained significant.
The spread (the difference between three-month WMPs yield and deposit rate) is highly
consistent, significant and positive for NG-WMPs and total WMPs, confirming that the greater
the spread between WMPs yield and deposit rate, the banks would issue more WMPs. This
higher spread is also considered a lucrative signal to potential investors. Table 5 further shows
that the magnitude for the spread is significantly positive, that is, a 1% increase in the spread
between WMPs yields and deposit rate would lead to a 14% and 8.4% increase in the NG-WMPs
and total WMPs, respectively. These results are in line with (Acharya et al., 2020; Liao, 2020).
Further discussion of empirical results for subgroups Wealth
Table 5 demonstrates the long and short-run results for the CS-ARDL model for four large banks management
(Big4) and SMBs, respectively. Columns (1) and (2) summarize the empirical results for four large
banks regarding NG-WMPs and total WMPs, respectively. In terms of four large banks, in
products: China’s
column (1), for NG-WMPs, the DAR has insignificant coefficients for both long and short-run shadow banking
relationships, consistent with our hypothesis and earlier discussion. These results confirm no
substitute relationship observed between NG-WMPs and deposits for large four banks. During
the financial crisis of 2007–2008, these four large banks were the leading contributors to the
implementation of stimulus credit into the economy (Allen and Gu, 2020; Hachem and Song,
2017). As a result, they grew more strongly in the deposit market to ensure their LDRs’ stability.
Column (2) demonstrates that in terms of dependent variable total WMPs, DAR has significant
and positive coefficients in the long and short run at 5% and 10%, respectively. It shows that
when regulatory authorities clamped the supply of credit to specific areas of the economy, four
large banks also issued more principal guaranteed WMPs (as total WMPs have a significant
number of principal-guaranteed WMPs). From other variables, the spread remained positive and
significant for both NG-WMPs and total WMPs, both in the long and short run.
The results for SMBs are presented in columns (3) and (4) of Table 6. For both nonguaranteed
and total WMPs, the DAR is significantly negative at a 1% level, both in the long run as well as
in the short run, respectively. In terms of economic magnitude, in the long run, a 1% decrease in
DAR would lead to 18.1% and 15.6% increase in the NG-WMPs and total WMPs, respectively.
These results validate the existence of a substitute relationship between WMPs and deposits for
(SMBs). Acharya et al. (2020) also found similar results. For these SMBs, the deposit market
became more competitive because of the large four banks’ increasing deposit expansion and
significantly contributed to the SMBs’ deposit shortage. To avoid sustainability risk and the
increased difficulty for SMBs to boost their deposits, these banks issued more WMPs.

Big4 banks Small and medium-sized banks

(1) (2) (3) (4)
NG-WMPs T-WMPs NG-WMPs T-WMPs

Long-run
DAR 0.312 (0.232) 0.297** (0.144) 0.181*** (0.054) 0.156*** (0.044)
Spread 0.113* (0.062) 0.119*** (0.031) 0.132*** (0.046) 0.070** (0.035)
ROA 0.255 (0.257) 0.023 (0.154) 0.132* (0.071) 0.069 (0.064)
LDR 0.458 (0.678) 0.252 (0.349) 0.149** (0.060) 0.153*** (0.052)
Dum-DCP 0.879 (0.567) 0.470 (0.288) 0.137** (0.061) 0.092* (0.055)
ECT 0.335*** (0.092) 0.295*** (0.099) 0.454*** (0.051) 0.378*** (0.043)
Short-run
DAR 0.472 (0.334) 0.424* (0.227) 0.272*** (0.090) 0.236*** (0.070)
Spread 0.162* (0.089) 0.152*** (0.037) 0.217*** (0.065) 0.107** (0.044)
ROA 0.293 (0.309) 0.047 (0.209) 0.193* (0.106) 0.116 (0.093)
LDR 0.507 (0.813) 0.250 (0.391) 0.186** (0.084) 0.194*** (0.070)
Dum-DCP 0.097* (0.654) 0.549* (0.306) 0.220** (0.095) 0.147* (0.084)
Obs 152 152 988 988
Note(s): This table presents the results for the cross-sectional autoregressive-distributed lag (CS-ARDL)
model, for four large banks (Big4) and small and medium-sized banks (SMBs), from the first quarter of 2010 to
the last quarter of 2019. Where Columns (1) and (2) represent Big4 banks, while columns (3) and (4) for SMBs, Table 6.
respectively, these columns contain two dependent variables, i.e. NG-WMPs and total-WMPs. While, Cross-sectional
“DAR 5 dept-to-assets ratio, spread 5 difference between three-month WMPs yield and deposit rate, autoregressive-
ROA 5 return on assets, LDR 5 loan-to-deposit ratio, Dum-DCP 5 dummy variable for policy implications, by distributed lag (CS-
assigning 0 to the period before the deposit rate ceiling and 1 to the period after.” Standard errors are presented ARDL) results for Big4
in the parenthesis***p < 0.01, **p < 0.05, *p < 0.1 and SMBs
IJBM Conversely, the large four banks had enough and steady deposit channels than that of SMBs.
This deposit–WMPs substitution effect confirms that SMBs rely heavily on the issuance of
WMPs to avoid any sustainability risk in terms of the deposit market.
In all the baseline models, only the short-run coefficients for deposit rate ceiling policy DCP
(dummy variable for policy implications, assigning 0 to the period before the deposit rate ceiling
and 1 to the period after) are statistically positive significant for both large four banks and
SMBs. However, for long-run coefficients, the contribution of DCP is only significant for SMBs,
and it was found insignificant for large four banks. This result confirms that in the long run for
SMBs, even after removing the deposit rate ceiling, the substitution effect between WMPs and
deposits remained significant. However, the large four banks behaved oppositely; their long-
run coefficients for DCP in terms of both nonguaranteed and total WMPs are insignificant.
From other variables, long and short-run coefficients for spread (the difference between
three-month WMPs yield and deposit rate) remained significant and positive for both large
four banks and SMBs. This finding shows that spread plays a similar role in both kinds of
banks. For SMBs, for columns (3) and (4) of Table 6, the magnitude of spread is significantly
positive, in the long run, a 1% increase in the spread between WMPs yields and deposit rate
would lead to a 13.2% and 7% increase in the NG-WMPs and total WMPs, respectively.
Acharya et al. (2020) reported the same results for the spread and SMBs relationship.
Moreover, in columns (1) and (2), the ROA ratio was found insignificant for large four banks,
but it remained positive and significant in column (3) for SMBs. As the dependent variable in
column (3) is NG-WMPs, this shows that SMBs use NG-WMPs to improve their profitability
in the long and short run. Lastly, both long and short-run coefficients for LDR remained
significant for SMBs, but insignificant for large four banks. This finding confirms that in the
short as well as in the long run, large four banks had enough deposit levels to manage and
control their LDR, but SMBs found it challenging to manage the LDR. Furthermore, for 26
countries, Kim (2017) also found that bank size has a significant effect on the growth of
shadow banking, and the author connected this growth with the growth of the traditional
banks. Although this research covered China’s banking sector, however, the results could be
helpful for other economies in terms of general perspective.

Conclusion and implications

This study empirically investigated the relationship between bank deposits and the issuance of
WMPs. WMPs emerged as a competitive substitute for deposits predominantly because these
products have no regulatory ceilings or restrictions on their returns. This attribute of the WMPs
can attract investors as banks offer yields higher than the conventional deposit rate. Over the
last decade, WMPs issued by banks experienced accelerated growth, despite the increased
regulatory measures. We document that the issuance of WMPs is directly connected with the
regulatory avoidance behavior of the Chinese banking sector, especially by manipulating the on-
balance-sheet items with the help of off-balance-sheet activities. This study confirmed that
WMPs and deposits have a stable long-run substitute relationship for Chinese banks. The
findings also demonstrated that this WMP–Deposit substitute relationship was only significant
and consistent for SMBs but not for large four banks. The SMBs’ dependence on these products
was found associated with their strategy to avoid sustainability risk in the deposit market.
Conversely, the large four banks had enough and steady deposit channels than that of SMBs.
The findings further revealed that the WMP–Deposit substitute relationship existed, even
after the removal of the deposit rate limit imposed by the PBOC to control the deposit rates.
The spread (between three-month WMPs yield and deposit rate) and profitability were the
other key contributors to this long and short-run relationship.
This study’s findings support regulation avoidance theory, which led to an
acknowledgment of the Chinese banking industry’s dependence on the WMPs to circumvent
regulations. The Chinese regulatory authorities and policymakers should further consider the
liberalization of the interest rates. Previously, in the context of interest-rate liberalization, the Wealth
Chinese government followed a patient and progressive policy instead. It took much longer to management
liberalize deposit rates, and China had no deposit insurance program until 2015. Although, the
government was cautious about the deregulation of deposit rates to curb irrational competition
products: China’s
between banks. Li and Liu (2019) explained that the retail deposit rate liberalization began in shadow banking
October 2004 and was completed in October 2015. Commercial banks were given more control
during the various liberalization stages to set their deposits and loan interest rates. By now, the
deposit rates are way below the WMPs’ returns, making WMPs more competitive;
policymakers should formulate a more balanced strategy in terms of deposit rates.

Limitations and future possibilities

This study’s limitations include the nonavailability of the data for the amount of WMPs, as
banks do not disclose any data regarding the amount of individual issued WMP. As a result, we
can only use the number of WMPs provided by the banks as a proxy for the bank’s exposure to
the business of WMPs (Cai et al., 2019). The data for the amount of WMPs may help in exploring
more valuable insights regarding the Bank–WMPs relationship. It would be worth exploring the
dynamics attached to this Bank–WMPs relationship regarding the amount of WMPs.
This research includes a comprehensive set of top 30 Chinese banks. These banks comprise
70% of China’s total banking assets, and they are also the leading issuers of WMPs. The
inclusion of more banks would further improve the robustness of the results. Future research
may introduce more banking variables related to leverage and liquidity; it will help analyze the
other aspects of WMPs. Likewise, the WMPs–Bank relationship, future research work can
analyze the WMPs and Trust companies relationship. As in China, Trust companies are also
involved in the WMPs business. Future research can accommodate further monetary policy
aspects to authenticate the impact of WMPs in terms of monetary policy.
A cross-country analysis of similar products is also recommended, which would enhance
the understanding of institutional involvement in the wealth management business, funding
channels and market structure. For example, a comparison would be interesting in terms of
asset-backed commercial paper (ABCP), asset-backed securities (ABS), collateralized debt
obligations (CDOs), repurchase agreements (repos) and WMPs in term of China, the USA and
the European countries.

Notes
1. Although PBOC dropped the deposit ceiling measure, the rates remained under pricing self-
discipline system. On April 12, 2018, authorities further discussed the complete removal of this limit.
https://www.reuters.com/article/us-china-cenbank-deposits/chinas-central-bank-to-relax-
commercial-banksdeposit-rate-ceiling-sources-idUSKBN1HK0T3
2. The large four banks in China are “Industrial and Commercial Bank of China, Agricultural Bank of
China, Bank of China, and the China Construction Bank.”
3. For including appropriate number of cross-sectional averages, this study adopted the method
suggested by Chudik and Pesaran (2015).
4. The lag structure under ARDL model is determined based on the Akaike Information Criterion (AIC).
5. To conserve more space, only findings pertaining to the preferred estimator, i.e. PMG estimator are
reported in the results section.

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About the authors

Syed Mehmood Raza Shah is a Postdoctoral Research Fellow at School of Finance, Dongbei University
of Finance of Economics, Dalian, China. Shah got the PhD Degree in Finance from Central University of
Finance and Economics, Beijing, China. Shah’s research focuses on Financial Stability, Financial
Institutions, Shadow Banking, and Wealth Management Products of China’s Banking Sector. The
author has valuable contributions in terms of published work and is currently working on bank-issued
wealth management products.
Yan Lu is a Professor and a Doctoral Supervisor at School of Finance, Dongbei University of Finance
of Economics, Dalian, China. Her research field is international finance. She is a Director of the China
Association for International Finance as well as a Director of American Economic Association of China.
She was a visiting scholar at the University of Missouri in 2006. She has published more than 70 peer-
reviewed papers and 3 monographs. She is the principal investigator for over 10 national and provincial
projects and has obtained more than 30 awards for teaching and scientific research.
Associate Professor Qiang Fu is the Deputy Director/Head at the Institute of Finance and Economics,
Central University of Finance and Economics (CUFE), Beijing, China. Fu’s research interests are
financial econometrics, securities investment, operational research, Bayesian statistics, regional
economics, logistics and supply chain management, and Financial Emergency Simulation. Dr Fu has
published several books and research papers in reputable journals and publishing houses Qiang Fu is
the corresponding author and can be contacted at: fuqiang@cufe.edu.cn
Muhammad Ishfaq is serving Minhaj University Lahore as an Assistant Professor and Head School
of Commerce and Accountancy. His research interests include international finance, investments and
Islamic banking and finance. Dr Ishfaq has published numerous research articles in reputable
international journals.
Ghulam Abbas is currently working as an Assistant Professor of Finance at the Department of
Business Administration, Sukkur IBA University, Pakistan. His research interests include financial
econometrics, financial economics and financial analysis & forecasting. He has published his work in
various reputable journals.

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