Walk away when you see "high returns," "principal guaranteed" or "sure profit"

Cost

Free. Just pause when you hear these words.

What you get

In 2018 at the Lujiazui Forum (陆家嘴论坛), the then chairman of the former China Banking and Insurance Regulatory Commission (银保监会) said it in these words: "A return above 6% should raise questions, above 8% is very dangerous, and at 10% or more you should be prepared to lose all your principal." The new asset-management rules (资管新规) require financial institutions not to "promise a guaranteed principal or return," and also require that "when payout becomes difficult, a financial institution may not advance money to pay in any form." So legitimate wealth products no longer have such a thing as a guaranteed principal. Losses from taking part in illegal fundraising are "borne by the participants themselves," and no one pays you back when things go wrong (China, 2018 and 2021)

Notes

The three lines of 6%, 8% and 10% were drawn by the regulator from experience and are not legal provisions. The remarks were made while discussing the crackdown on illegal fundraising, and they were aimed at wealth products and investment companies that promise high returns. This is not investment advice. If you are running a business and want to borrow from people or bring in shareholders, see §12.26 (raising money from people for a business) for the red lines.

Evidence grade

A : Specific numbers from meta-analyses, large cohorts or randomized trials; for law and policy, the statute or official text.

Sources

1. Guo Shuqing (2018). Preventing and Defusing Financial Risks and Striving to Cross the Major Hurdle [in Chinese] (speech at the 10th Lujiazui Forum, from the website of the National Financial Regulatory Administration): "In the course of cracking down on illegal fundraising, we should work in many ways to make the public understand that high returns mean high risks. A return above 6% should raise a question mark, a return above 8% is very dangerous, and at 10% or more you should be ready to lose all of your principal." https://www.nfra.gov.cn/cn/view/pages/ItemDetail.html?docId=182418
2. Republished by the Tianjin Municipal Financial Regulatory Bureau. https://jrgz.tj.gov.cn/ztlm/ztzl/jrjfwphjr/202006/t20200625_2744709.html
3. People's Bank of China et al. (2018). Guiding Opinions on Regulating the Asset Management Business of Financial Institutions [in Chinese] (Yin Fa [2018] No. 106, Articles 2 and 6). https://www.gov.cn/gongbao/content/2018/content_5323101.htm
4. State Council (2021). Regulations on Preventing and Handling Illegal Fundraising [in Chinese] (State Council Order No. 737, Article 25). https://www.gov.cn/gongbao/content/2021/content_5588815.htm

Translated from the Chinese original. Original book, section 5, tip 6. This section is about money and spending. It is general information, not financial or investment advice. Content may be out of date and rules differ by place. When you actually deal with an agency, a doctor or a court, follow what local officials, doctors and lawyers tell you. Disclaimer