The pitches, from one of China’s biggest and most established banks, made the investment seem like a sure bet.
“Oil is cheaper than water” was the slogan for an investment product, called Crude Oil Treasure and sold by Bank of China, that was pegged to the price of petroleum. In one cartoon ad, two men at a gasoline station lament the price of fuel when a third tells them that they should buy barrels of crude instead. “You can make money no matter if the price rises or falls,” he says.
That was not exactly true. When global oil prices crashed last month, investors in Crude Oil Treasure lost their money and then some. Because of a quirk in global oil markets, Bank of China said, Crude Oil Treasure investors owed the lender even more money, specifically $37.63 for every barrel they had bought.
The outrage that followed has exposed the plight of small investors in the world’s second-largest economy. They have few safe places to park their money. They enjoy limited legal protections compared with investors in other countries.
And when they protest, they are often silenced by the authorities. Crude Oil Treasure investors said the police had called and visited them to make sure they would not cause a public fuss.
For Beijing, the timing is problematic. Its people are struggling to overcome the economic devastation caused by the coronavirus outbreak. Its lawmakers are set to meet on Friday for their delayed annual legislative session. Angry, outspoken investors would make for an unwelcome image.
China’s carefully cultivated image of a strong government that can shield its citizens from the whims of the global market is at stake.
“This product completely exceeded what we can bear,” said Chen Xueming, an investor in Crude Oil Treasure who has a son about to head to college.
Mr. Chen bought over $6,000 worth of futures tied to 216 barrels through a Bank of China smartphone app. After oil crashed, he owed nearly $12,700.
It is not clear how many people invested or how much they bought, but the bill for Bank of China could be as much as $1.4 billion, according to Shujin Chen, an analyst at the brokerage Jefferies, based on reports that the lender had 60,000 investors in the product.
The authorities have moved to limit the damage. China’s banking regulator said it was investigating. The country’s top leadership has spoken out about the lack of investor protections in volatile markets.
A Bank of China spokeswoman in Hong Kong declined to answer questions. On May 5, the bank said it would try to protect clients’ interests, was negotiating settlements and would respect judicial decisions if it ended up in court with investors.
China strictly limits moving money abroad in part to protect its people from global market turbulence. It also restricts retail investors from trading in foreign commodity markets. But Bank of China and others in recent years…