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China financial sector: Bank deposits slow, online funds grow

Not only is M2 liquidity tightening, the growth of bank savings is also slowing in China.

In contrast, money market funds such as Ant Financial’s Yu’e Bao have grown multiple times over the past four years.

The amount of deposits in Yu’e Bao is even larger than that held in some commercial banks, and the country now has hundreds of similar funds.

As CGTN’s Xu Xinchen reports, Yu’e Bao’s holdings hit 1.43 trillion yuan in June, almost doubling the fund’s size in just half a year.

Most put the shocking growth down to Yu’e Bao’s 4 percent 7-day annualized return rate, which continues to handily beat interest rates offered by traditional banks.

According to research firm Wind, there are over 270 money market funds in China similar to Yu’e Bao with 7-day annualized return rates of over 4 percent.

Five of them are even offering return rates of over 5 percent. While people may prefer the higher interest rates of an online fund, experts say the rising popularity of Yu’e Bao and others is not really affecting banks’ overall liquidity.

Online money funds’ high returns do come at a cost to the banks, however, as they now have to pay higher interest rates for the money from those funds.

They also have had to raise their interest rates paid on some wealth management products to attract customers.

Yu’e Bao also recently adjusted down the cap on how much money an individual can deposit, from a million yuan to only a quarter of a million.

Oliver Rui, professor of finance & accounting in China Europe International Business School, says that move was Yu’e Bao’s response to concerns from the banks about the increasingly tough competition they face from online funds.