The start of the Year of the Horse on 31 January could bring an unwelcome event for investors in a wealth management product of China Credit Trust Co. The bank is reportedly in talks with new investors to raise funds necessary to pay off current investors.

The start of the Year of the Horse on 31 January could bring an unwelcome event for investors in a wealth management product of China Credit Trust Co. The bank is, according to Reuters, in talks with new investors to raise funds necessary to pay off current investors when the high-yielding product matures at the end of the month.

China Credit Trust also reportedly told investors in "Credit Equals Gold #1 Collective Trust Product" that the coal company whose loan from the trust company is about to mature has received a government permit that will allow it to restart production on one of its coal mines. The news service quoted a statement from the trust company to investors that it has seen.

Earlier this month China Credit Trust warned investors that they may not be repaid when one of its wealth management products matures on 31 January. The reports add to fears that such products, about which Chinese regulators have warned in recent months, could fail.

ICBC, which marketed the product without providing any formal guarantee against default, has reportedly said it would not bear the "main responsibility" for repaying investors. China has not suffered a large-scale public default as yet because local governments and state banks have bailed investors out.

There are worries that because trust loans account for 11 per cent of overall corporate fundraising, a default could spread financial contagion.

The issue shines a light on vulnerabilities in a state-controlled Chinese financial system that is notorious – albeit with some reforms – for opacity and lack of clarity about the strength of balance sheets and risk exposures.