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Alibaba's internet shopping sites 5.2 per cent interest on money that can be redeemed instantly to pay for products or withdrawn with one day's notice.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."