Investors bank 100b yuan into Ma's online service
Jack Ma Yun's online investment service has attracted 100 billion yuan (HK$127 billion) since June, leading a group of new entrants in the competition for cash that is driving benchmark yields to an eight-year high.
Yu E Bao, which means leftover treasure, is paying users of Alibaba's internet shopping sites 5.2 per cent interest on money that can be redeemed instantly to pay for products or withdrawn with one day's notice. That compares with 0.35 per cent on at-call bank deposits and the 3 per cent official one-year savings rate.
The mainland's 10-year government-bond yield reached 4.7 per cent last month, the highest since 2005.
President Xi Jinping is lessening state control over interest rates to improve allocation of capital after low-cost funding led to excessive investment by local governments and overcapacity in some industries.
Chris Powers, an associate at Shanghai-based Z-Ben Advisors, said money market funds, including Yu E Bao's, could have 750 billion yuan under management by the end of this month, up from 488 billion yuan in September.
"This helps to push bottom-up interest-rate liberalisation and increase the share of funds priced at market price," said Ting Lu, the head of Greater China economics at Bank of America. "From where we stand, this is a significant trend."
Mainland depositors have been eager to adopt higher-yielding investments after strict People's Bank of China control of what banks can pay for deposits and charge for loans led to years of so-called financial repression.
To attract customers, lenders turned to off-balance sheet wealth-management products whose unregulated proliferation has attracted tighter rules this year after they were seen to threaten financial stability.
Competition for deposits between banks' wealth-management products and emerging money-market funds helped push funding costs higher just as rising bond issuance drew more cash from the system, Ting wrote in a report last week.
The 12 months to June was the busiest such period on record for mainland bond sales, with more than 4.5 trillion yuan in notes being sold.
While more mainstream money market funds have required minimum investments and restrictions on how quickly cash can be withdrawn, Yu E Bao accepts as little as one yuan and will return it to the user with one day's notice. That convenience, coupled with annualised returns that have varied from 4.3 to 6.3 per cent, has helped Yu E Bao grow to twice the size of the next largest mainland-based mutual fund in just five months.