Alibaba's online fund Yu E Bao rakes in the yuan as banks suffer
Yu E Bao has attracted some 400 billion yuan since its launch last year, thanks to high interest rates which easily beat traditional bank offerings
Caution with money has guided Beijing resident Mrs Zhu for most of her 82 years. That meant trusting the banks with her savings, aside from her holdings of Chinese treasury bonds. But then word came Mrs Zhu's way of the attractive terms on offer at Yu E Bao, Alibaba's deposit-like online money market fund operated by Tianhong Asset Management.
Just days before the Lunar New Year, Mrs Zhu transferred 30,000 yuan from her bank account to the fund; it was money she had saved for a medical emergency. "I've been hearing good things about Yu E Bao, both from my elderly peers and from the news," said Mrs Zhu, who declined to give her full name.
Despite her son's warnings about security issues associated with internet finance, she was determined to give the online product a try. "It makes me feel good to see I earn some money everyday. My bank account can't provide me that," referring to the daily account updates she receives via text message.
Mrs Zhu is far from alone in her willingness to loosen long-held ties to banks. She is among more than 60 million Yu E Bao account holders who have signed up since its launch last June, data released by Tianhong Asset Management on Wednesday shows.
They are drawn to Yu E Bao's high annualised yield that has been in excess of 6 per cent, and as high as 7 per cent. In contrast, traditional short-term money market funds on average offer a 3 to 6 per cent annualised rate of return and they lack the flexibility of Alibaba's online product.
The fund is estimated to have 400 billion yuan under management - with about 150 billion yuan added in the four weeks around the Lunar New Year, fund researcher Wang Qunhang said. That makes Yu E Bao China's biggest money market fund, said Wang, who is director in charge of funds evaluation at Ji'an Financial Information in Beijing.
However, observers and researchers are cautious about whether the fund's impressive growth rates can be sustained, based on an analysis of monthly income and savings patterns.
"January and February are the traditional Chinese festive season. It's a peak earnings season when people have extra money, so they can put it into wealth management products with high returns," Wang said. "But starting in March, this growth will slow down as people earn less."
"Another reason is that when Yu E Bao reached 180 billion yuan under management at the end of last year, media picked up this news and did a good broadcast job for them, which has attracted many newcomers."
Fuelling the scepticism is that Tianhong Asset Management has declined to verify the market estimate of 400 billion yuan in assets under management. If confirmed, this would exceed the combined customer deposits held by the five smallest listed mainland banks.
"From a global point of view, we are still far from the top players," said Wang Dengfeng, Yu E Bao fund manager at Tianhong Asset Management. "By January 15, we were ranked 14th among all the money market funds in the world. There is still a big gap between us and the number one."
Conjecture over its market rankings aside, that the Alibaba-backed product has attracted the attention of the traditional banks is beyond doubt. Reuters this week reported that the China Banking Association has proposed subjecting yields on online money market funds - including Yu E Bao and similar offerings from internet giants Baidu and Tencent - to the same administrative cap that governs traditional term deposits.
With the current benchmark for one-year deposits at 3 per cent, the interest rates at commercial banks can only exceed the benchmark by up to 10 per cent of it. If the banking association succeeds in its push, this would remove online products' core competitive advantage.
Tianhong Asset Management was rumoured to be planning a second batch of the Yu E Bao product for launch this month. Market talk suggests this offering has been delayed, raising concerns that the momentum for the online product may be easing.
But Wang Dengfeng said Tianhong did not have a launch schedule for a second batch.
Wang Qunhang said: "I've heard it will be a fixed-term product. If that's the case, I am not optimistic about it."
The fund researcher said the issuance of fixed-term offerings had been shrinking since the second half of last year amid a cooling of interest in the market. "The returns on a fixed-term product aren't necessarily higher than a short-term money market fund, and it lacks the flexibility of such products," he added.
Meanwhile, Mrs Zhu still looks forward to the daily text message updates on her Yu E Bao fund - especially when the banks she had long trusted are paying out that unappealing 3 per cent on one-year fixed deposits.
Additional reporting by Andrea Chen