Alibaba, Baidu and Tencent challenge dominance of state banks in deposit taking
Chinese investment holdings company Tencent has tapped the popularity of its online messaging app WeChat to launch an online investment fund, joining a trend that could threaten the dominance of the country’s predominantly state-run financial sector, according to media reports.
The fund, known as Licaitong, has garnered as much as 10 bn renminbi ($1.65 bn) in its first week of operation, according to official financial newspaper Shanghai Securities News. In its first two days, Tencent says the fund attracted 1 bn renminbi in investment from WeChat users.
The service competes against other online investment products recently launched by online retailer Alibaba Group and search engine Baidu in an attempt to capture a portion of the deposits in China’s hotly disputed banking system.
Alibaba launched its Yu’E Bao service in June 2013 and has since attracted 49 mn investors and more than 250 bn renminbi in investment. Baidu launched its own service, known as Baidu Finance Center, last October, and attracted 1 bn renminbi on its first day.
Although they account for less than 1 percent of the amount deposited in Chinese banks, these services present a growing threat to traditional deposits, the Financial Times newspaper reports. The services are technically money market funds but China is increasingly using them as an alternative to bank accounts, the newspaper says.
Licaitong offers the highest deposit rate of all the services, at 7.5 percent, while Yu’E Bao is offering 6.5 percent, the FT says. To compete, the five largest banks in China have raised their one-year deposit rates to 3.3 percent, the maximum allowed by the central bank.
The online investment funds ‘will soon become a too-big-to-ignore part of the economy,’ Victor Wang, an analyst at Credit Suisse, tells the paper. ‘They are eating banks’ desserts today. If the banks don’t react, they will take banks’ meals tomorrow.’
