Alibaba: the new face of finance in China

BEIJING/SHANGHAI Mon May 19, 2014 2:14pm IST

An employee is seen behind a glass wall with the logo of Alibaba at the company's headquarters on the outskirts of Hangzhou, Zhejiang province, April 23, 2014. REUTERS/Chance Chan

An employee is seen behind a glass wall with the logo of Alibaba at the company's headquarters on the outskirts of Hangzhou, Zhejiang province, April 23, 2014.

Credit: Reuters/Chance Chan

Related Topics



BEIJING/SHANGHAI (Reuters) - For Yuan Yue, a Chinese graduate student in international trade, moving all of her spare cash to an online investment fund called Yu'e Bao was a no brainer.

"The yield is even higher than a bank time deposit, but a time deposit ties up your money ... so it's better to just keep it in Yu'e Bao, because you can use the money anytime. So why keep it at the bank?" said Yuan, who studies in Shanghai.

Yu'e Bao, available on smartphones, is conveniently linked to China's biggest online payments platform Alipay, similar to PayPal and owned by an affiliate of e-commerce giant Alibaba Group Holding Ltd. Users can dip directly into Yu'e Bao to pay for goods bought online.

As Alibaba gears up for what could be the world's biggest tech IPO, online finance has become another focus of the sprawling firm - and while that business will be largely kept separate from the offering, it could play a major role in the entire company's future growth.

China's banking industry is behind those of developed markets but its number of Internet users, now more than 618 million, is sparking a boom in online and mobile payments.

The total transaction value of China's third-party online payments is expected to reach 18.5 trillion yuan ($2.97 trillion) by 2017, up from 5.4 trillion yuan last year, according to Shanghai-based data firm iResearch.

Yu'e Bao's high interest rates are an incentive to deposit money into the platform, money which can easily be used to buy products on Alibaba's huge online shopping websites and anywhere else that takes Alipay.

Money market fund Yu'e Bao has been such a success that the fund management company that helped launch it, Tianhong Asset Management Co, has gone from near obscurity to China's biggest in terms of assets under management (AUM) in just months.

The firm had 554 billion yuan ($88.88 billion) in AUM in the first quarter of 2014, from just 10.5 billion yuan a year earlier, according to Z-Ben Advisors, a Shanghai-based investment management consultancy.

And now the company that owns Alipay, Zhejiang Alibaba E-Commerce Co, is waiting for regulatory approval to buy 51 percent of Tianhong.

Tianhong's massive assets under management are in low risk, highly liquid money market funds, said Wang Dengfeng, Tianhong's fund manager.

"We knew it was a break-through product and would succeed but we were surprised that it could reach today's levels," Wang said. "We didn't expect it to move the money market industry and also the country's money management policies."


Tianhong may have grown fast, but like most money market funds it has razor thin profit margins, said Chris Powers, a consultant at Z-Ben Advisors.

"The key will be whether Tianhong can take their now new name recognition and their long list of investors and use them to get them to invest in normal equity funds or fixed income funds which will really help grow their AUM but also grow their revenue," he said.

Yu'e Bao and Tianhong may also come under regulatory pressure.

Their rise has angered China's big state-owned banks, which can't compete on deposit interest rates as they're controlled by the central bank. The banking regulator has been talking about possible restrictions on fund flows to e-payment platforms or even subjecting them to the same requirements as standard banks.

Alibaba founder Jack Ma is fighting back.

"It's not the monopolies and powers that determine success in the market, it's the consumer," Ma said on Alibaba's mobile chat app, after banks imposed limits on how much their customers could transfer to Alipay in March.

But it's not just regulatory challenges looming.

Competitors such as China's dominant online search company Baidu Inc and Tencent Holdings Ltd, a social networking and online gaming giant with the hugely popular WeChat mobile messaging app, have their own investment platforms for customers.

And those customers are fickle. Yuan Yue has been watching the yields on Yu'e Bao carefully as they've dropped below 5 percent for the first time. A one-year time deposit at a local bank pays at most 3.3 percent.

"If it falls below 4 percent I won't keep it in Yu'e Bao," she said. "Others like WeChat and Baidu are offering similar products.

"I can split it up - 2,000 yuan in Baidu's fund, 2,000 yuan in a WeChat fund. They all make me money and the risk is diversified."

($1 = 6.2334 yuan)

(Editing by Jacqueline Wong)


After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Obama In India

Reuters Showcase

RK Laxman Dead

RK Laxman Dead

'Common Man' cartoonist RK Laxman dead at 93  Full Article 

Banking Revolution

Banking Revolution

India turns to corner shops, mobile phones for banking revolution.  Full Article 

Nuclear Group

Nuclear Group

China urges India to take steps to satisfy standards of NSG  Full Article 

Gold Market

Gold Market

Chinese gold demand holds up ahead of holiday, Indian buying weak  Full Article 

India-U.S. Relations

India-U.S. Relations

Column - U.S. and India should join to balance China's rise  Full Article 

Padma Bhushan

Padma Bhushan

India honours Bill Gates with civilian award  Full Article 

Fashionable Modi

Fashionable Modi

When Modi met Obama, his name was all over - his suit  Full Article 

New Greek PM

New Greek PM

Greek leftist Tsipras sworn in as PM to fight bailout terms  Full Article 

Australian Open

Australian Open

Venus fireworks illuminate Australia Day  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage