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Yu’E Bao Draws Chinese Investors as They Seek to Beat Inflation

Nov. 15 (Bloomberg) -- Yu’E Bao, an investment product offered through Alibaba Group Holding Ltd.’s third-party payment affiliate Alipay.com Co., has attracted more than 100 billion yuan ($16.4 billion) as Chinese investors seek returns that beat inflation.

Users of Yu’E Bao, created by Beijing-based Tian Hong Asset Management Co., jumped 12 times to 30 million by Nov. 14 from the end of June. The scale of the product jumped almost 18 times to 100 billion yuan from 5.7 billion yuan, Tian Hong said in an e-mail.

Alibaba Group, China’s largest e-commerce business, is pushing into finance as households trapped between savings that lag behind inflation and risky investments seek alternatives with better returns, said Wang Weidong, an analyst at Shanghai-based Internet consultant IResearch. Chinese consumer prices rose 3.2 percent in October, an eight-month high.

“The investment returns are pretty high compared with other products,” Wang said. “Also, users who already have a habit of using Alipay will be less hesitant to use it due to the convenience, and have an existing trust of the brand.”

Alipay began offering Yu’E Bao, which translates to “leftover treasure,” in June. Alipay users can put their money into the product, which invests in funds. There’s no minimum amount, and customers can withdraw their cash anytime.

Zhejiang Alibaba E-commerce Co., the parent of Alipay, announced in October it would pay 1.18 billion yuan to buy control of Tian Hong to ensure the safety of investments in Yu’E Bao, Lucy Peng, chief executive officer of Alibaba Small & Micro Financial Services Group, said at the time.

Alipay Structure

Alipay will also offer new fund products from third parties, Peng said, declining to identify them.

Alibaba Small & Micro Financial Services Group is being restructured, and its shareholder information will be disclosed “soon,” Peng said. She said the group is registered in China using the name Zhejiang Alibaba E-commerce Co. and declined to elaborate.

The financial group plans to offer a 60 percent stake to strategic investors, according to a statement on its Sina Weibo official account.

Alibaba Small & Micro Financial Services Group contained two loan companies as of July, as well as Alipay, which has more than 800 million registered accounts.

Alibaba’s financial arm also offers a cloud computing service, known as Ju Baopen, to finance companies. It works with five banks and has signed cooperation deals with another 20, said Yuan Leiming, a general manager at Alibaba Small & Micro Financial Services Group, during an conference in October.

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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