BEIJING — When Lisa Wang sank her retirement money — all $730,000 of it — into a single investment, her fund manager repeatedly said there was zero risk.
He was wrong.
On Wednesday, Ms. Wang, 61, joined about a dozen other customers in the lobby of a Beijing branch of the bank China Minsheng, pressing employees for details and demanding their money back, after Chinese news media reported that more than $400 million of investor money had disappeared.
“I invested because they told me it’s a product that would guarantee my capital,” Ms. Wang said. “My fund manager stressed again and again that there is no risk. I’m so angry and disappointed.”
The scandal highlights what economists say is a growing risk in China: poorly regulated financial products that are often mis-sold to investors hungry for returns that handily beat what banks offer for deposits. Such investments are often kept off banks’ balance sheets, giving rise to a “shadow banking industry” that experts worry could derail the country’s economy.
In the case of China Minsheng, the Chinese police have detained the head of the lender’s Hangtianqiao branch, Zhang Ying, the bank said in a statement to the Shanghai Stock Exchange on Tuesday, adding that it was assisting the police with an investigation.
The scandal erupted when a Chinese newspaper, the 21st Century Business Herald, reported on Tuesday that the wealth management product was forged and “does not exist.” It said that more than 120 investors had registered to ask the bank to refund their investments and carry out an investigation.
Investors, mostly older people, said China Minsheng had lured them with offers of free golf events, overseas trips and a rate of return of 8 percent to 27 percent. Many of the investors were members of a club that was established by the branch, which asked them for a minimum investment of about $145,000. At the bank on Wednesday, one of them shouted: “We’re not going home if you don’t return us our money.”
The scene is a familiar one in many Chinese cities: furious investors protesting, defrauded by wealth management products that have gone under the radar of regulators. It highlights the growing risks of these products, which many economists say pose a significant threat to the financial system.
According to state news media, Chinese investors have plowed $4.4 trillion into wealth management products, equivalent to close to 40 percent of China’s annual economic output.
Such products are often sold by banks and other financial institutions to ordinary Chinese investors with the promise of high rates of return, but they are not kept on the balance sheet, and thus form part of the so-called shadow banking industry. Most of the investments have flowed into coal, steel and real estate — sectors that are facing overcapacity problems in China.
Analysts fear that Chinese investors, who often display a herd mentality, could dump the products once bad news spreads, creating a liquidity crunch.
In nearly all such instances in the past, the Chinese government has stepped in to bail investors out, avert ripple effects and ensure social stability.
“It invites moral hazard,” said Victor Shih, an associate professor at the University of California at San Diego who specializes in the politics of Chinese banking policies. “When you tell people that they will get bailed out, then they will engage in very, very risky behavior and, also, opportunistic behavior on the part of the banks.”
In the case of China Minsheng, many investors said they were drawn to the product because they were promised that their investments would be repaid in full. They said they were encouraged by the bank’s strong reputation, as well as by incentives offered by the branch, such as free trips to South Africa.
The scandal reflects “the lack of internal controls” at the bank, according to Wei Jiyao, an analyst at PY Standard, a research company based in Chengdu, China, that tracks wealth management products. Mr. Wei predicted that regulators would probably respond by trying to tighten their control over the sector.
Chinese regulators have expressed increasingly open concern about the proliferation of such short-term wealth management products. In March, the chairman of China’s biggest bank and a senior Chinese insurance regulator issued strong warnings about the dangers that shadow banking presented to the Chinese economy.
The preceding month, Chinese authorities said an online finance company had bilked investors out of more than $7.6 billion in what they said was a huge Ponzi scheme.
But while regulators have pledged to increase oversight of the sector, experts say that many banks have found ways to circumvent the rules.
Christopher Balding, an associate professor of finance at Peking University HSBC Business School in Shenzhen, China, said he had not seen any indication that the authorities would seriously rein in wealth management products, even though “intellectually, they want to.”
Mr. Balding pointed in particular to a Communist Party congress scheduled for the fall, when a big leadership shake-up is expected and when the government prizes social stability above all else.
“They are kind of like a dieter on January 15 who says: ‘It’s going to be so hard for me to get out of bed and go and exercise,’ ” he said. “But are they willing to get out of bed every morning and give up that cookie at lunch?”