Rebecca Ning can improve the yield on her savings by tapping her phone. Using Alipay, an Internet payment system, she pokes a silver icon on her screen to transfer money from her bank account in Beijing to a money-market mutual fund via a service called Yu’E Bao. She earned 430 yuan ($71) in interest on 30,000 yuan in a little less than three months last year. Had she left the money in her checking account earning 0.35 percent, her take would have been 26 yuan. “I put any spare cash I have into Yu’E Bao,” says Ning, 24, a graduate student in finance at Hong Kong Baptist University. “I’m basically losing money if I leave it as a bank deposit, as it’s depreciating in value every day.”
Yu’E Bao, which means “leftover treasure,” says it took in $31 billion from 43 million customers in the six months after it started in June. It invests cash in a money-market fund run by Tianhong Asset Management, in which Alibaba Group, the nation’s largest e-commerce company, owns a majority stake. The money goes into negotiable bank deposits as well as government and corporate bonds on the interbank market. Yu’E Bao’s return has varied from 4.3 percent at its June 17 debut to a high of 6.8 percent on Jan. 2.
Search engine company Baidu in October began offering Baifa, a money-market fund managed by China Asset Management. The fund attracted more than 1 billion yuan from at least 120,000 customers on its first day, according to Kaiser Kuo, a spokesman for Baidu. Tencent Holdings gives users of its WeChat instant message and social network service access to accounts set up by fund management companies and will direct customers to the funds’ products. The firm is “exploring ways to cooperate with different financial institutions to drive online innovations in financial services,” Jerry Huang, a director of investor relations for Tencent, wrote in an e-mail.
As Internet financial products gather momentum, China’s state-controlled banks are losing their grip on the nation’s 44.8 trillion yuan in household deposits. For decades those deposits have helped keep bank profits high, thanks to government rules that create a 3 percent spread between what banks collect on loans and what they pay on one-year time deposits. Household deposits at banks fell by 897 billion yuan in October, the latest month for which figures are available, as investors shifted out of savings and checking accounts into investment products, central bank data show. Yu’E Bao and other Internet-based financial products are “disruptive to traditional ways” of attracting deposits, says Zhang Zhiming, head of China research at HSBC Holdings in Hong Kong. “Traditional banks will be challenged. That’s not necessarily bad news.”
President Xi Jinping is pushing political and economic changes to loosen government controls in everything from energy pricing to banking and let market forces have more influence. China’s banking regulator said in early January that it will allow three to five banks completely funded by private investment to operate this year on a trial basis.
“Undoubtedly, a group of new entities like Alibaba have marched ahead of traditional institutions like us, but we won’t just sit back,” Zhang Jianguo, president of China Construction Bank, the nation’s second-largest lender, told investors in August. Chinese banks need to attach “strategic importance” to Internet banking, Gu Shu, a vice president of Industrial & Commercial Bank of China, the nation’s largest bank, said at a Nov. 25 conference. Customers using ICBC’s website or mobile phone application can purchase its mutual funds, insurance policies, gold, currencies, and other financial products.
To keep money from flowing out the door, banks have started offering what are known as wealth management products, which are similar to certificates of deposit. While they offer higher rates than checking and savings accounts, most have a 50,000 yuan minimum investment and must be held for at least a month. That makes it hard for them to compete with unrestricted Internet-based investing, which allows savers to move as little as 1 yuan at any hour of the day for any length of time. “Yu’E Bao is very convenient in that you can get back your money anytime,” says Ning. “Investment products provided by banks only allow you to get back your money on workdays, and the process is a lot more complicated.”
Even so, some savers aren’t ready to trust their money to an app. Wang Lin, a 50-year-old English teacher in Chengdu, says her Yu’E Bao experiment lasted only a few weeks before she took out the 2,000 yuan she invested. “At first I thought it was similar to a bank deposit,” says Wang, who considers mobile phones unsafe and prefers not to link any of her bank accounts to the gadget. “But later I found out it actually was a fund product, and it was risky. If I have money, I would still prefer to put it into property. That is the only thing that has provided a stable return.”