A scramble to retain customers who are pulling their money from traditional deposit accounts is causing Chinese banks to use alternatives that regulators fear could undermine the financial underpinnings of the economy.

China places a ceiling on deposit rates as a way of limiting competition among banks and to fortify the capital positions of institutions that had in effect been insolvent a decade ago. But with inflation nearly

3 percentage points above the rate ceiling many depositors want better returns, forcing banks to come up with new ways to retain deposits. Their main technique has been the issuance of wealth management products, which typically are loans repackaged as short-term investment vehicles and are held off balance sheet. Annualised rates can be as high as