Chinese leaders weigh in on wildly popular Internet investment attracting “little guys” from children with pocket money to retirees.

Every day, 9-year-old Francis Xu closely follows the rates of return on two online mutual funds, Yu’ebao (literally “treasure of available money”) and Licaitong (“keen on wealth management”).

He easily spends five to 10 minutes of his 30-minute daily video game and Internet allowance to check, record and keep track of the money market funds launched by China’s Alibaba and Tencent.

“I need to take control of my gains and losses,” the third-grader tells Shanghai Daily. “It is a great fun watching my entire property growing day by day. In three weeks, I‘ve made more than 100 yuan (US$16).”

The pupil is among the 81 million users of Yu’ebao funds (as of February 26). That’s more than the number of investors in the Shanghai and Shenzhen stock exchanges, a total of around 70 million.

Because of the rising popularity of Internet finance and concern of the risk, there has been increasing speculation about banning or regulating the products.

On Wednesday, Premier Li Keqiang indicated it would be regulated, not banned, when he included “promoting healthy development of Internet finance” in a government report at the National People’s Congress.

Xu, the 9-year-old, now can be more relaxed about his property of 30,000 yuan of hongbao or pocket money in red envelopes he received during the Chinese New Year from uncles, aunts and grandparents.

In addition to giving physical cash in red envelopes, Xu’s older relatives also took advantage of new technology and distributed red envelopes through Tencent’s WeChat. Xu’s father helped him to claim the money through his bank account, and taught Xu how to check his balance.

The boy showed so much interest that his parents decided to put the rest of his holiday money in the funds as well.

“We were happy because it was the first time he showed such interest in math,” says the boy’s father Mike Xu.

“Now I’m slightly worried that he’s getting too much into it,” he says with a laugh. “Two weeks ago, when the rate first started to drop, he had nightmares of losing all his money for two nights.”

His worry is the same as millions of the investors.

The annual rate were around 7 percent when Yu’ebao was launched last June, and Licaitong, launched soon after, once reached as high as 8 percent; now they both dropped to a bit lower than 6 percent. Experts expect the rate to drop further to around 5 percent, closer to the market average.

“It is a very unique Chinese business because the ‘little guys’ here, who have some spare money but often less than the minimum required by high-return financial products, didn’t have a lot of financial options before,” says Lei Yu, a Shanghai-based private investor. “There are many products with a return over 10 percent, but you need at least a million to start with.”

Tiny scale

He considers Yu’ebao a clever business that attracted the large number of the little guys who were long ignored by banks and other funds.

“But its high rate can not go on forever, as it has been proved through the recent declining. And investors should be aware of its risks.

Just like any other mutual funds, there is no guarantee you will always make money,” Lei says.

While experts say the scale of Yu’ebao is still tiny compared with the banking sector’s total deposit base, the new fund and its many clones have encouraged many Chinese, from pupils to retirees, to rethink how they handle money.

“I’ve never really thought about investment in my life,” says 67-year-old Zhang Chengfa, a retired worker. “When I was young, we just had enough to get by on and nobody talked about investment. Later, when life got better and the country got richer, we put whatever extra money we had in the bank.”

While wealthy Chinese invest in property around the world, gold, art and antiques, it is only in recent years that average Chinese have been exposed to options other than savings accounts and certificates of deposit.

Before Yu’ebao was launched, Zhang didn’t know much about mutual funds, except that they required a minimum investment, frequently 50,000 yuan, and a fixed deposit period during which money could not be withdrawn.

“All that was too complicated for me,” Zhang says. “And I couldn’t feel safe knowing I can’t withdraw my own money any time I want. And I don’t know anything about Internet or computer. I only started using a smartphone last year.”

Unsure about the security, Zhang even refused to set up an online bank account. So when his daughter came home last November, telling him she had put half her monthly salary into Yu’ebao — something beyond his imagination — Zhang almost froze.

“And she told us she plans to transfer half of her savings there too,” he adds. “What a shock!”

But he became intrigued as his daughter showed him purchase she made online at prices far lower than he usually pays in stores and supermarkets.

“We always compare prices when we make purchases. So it’s very tempting to see such bargain, to save money,” Zhang adds. “Plus we are getting older. We don’t want to be a burden to our daughter, so it’s comforting to know I can get stuff and pay bills without leaving the house.”

It didn’t take him long to jump on the Yu’ebao bandwagon, especially after learning that his older brother had also climbed on board.

“I don’t plan to make much money, but it feels like I’m losing money when everyone else is doing it and making some money,” Zhang adds. “I’m only concerned about its safety, since it’s not state-owned.”

He previously made purchases on Alibaba’s Taobao with help from his daughter, so it felt safer, knowing he could use that money to pay bills and make purchases anytime he wants.

“We are getting old and at least this saves us the trouble of lining up and getting money from the bank, then queuing up to pay at stores,” he says.

Mobile account

The decision to invest online was much faster for 23-year-old Stella Yang, who started working last October. Every month she used to spend her entire salary, down to the last penny, and more than half was spent on Taobao.

“Invest? Of course not, since I don’t have any money left,” she says. “But I actually save money by buying online, especially using mobile apps that offer promotional discounts and coupons for mobile purchasing.”

Yang usually puts 2,000 yuan, around half of her salary, into the  mobile account at the beginning of the month, so she can make purchase through her cellphone any time, from electronics to cosmetics. When she learned about Yu’ebao, she joined right away.

“It’s easy, all done with my smartphone, so I don’t need to make a special effort.”

The convenience and easy-flow of money is a big attraction for many Chinese, such as 36-year-old engineer Peter Shen and more than half of his Chinese colleagues in a Shanghai-based foreign company.

Unlike Yang, Shen had rarely used online purchasing platforms, and he joined the 81 million when the fund became an overnight hot topic among colleagues and friends.

Shen transferred around 50,000 yuan, the amount that had previously saved in the bank.

He has other investments in the stock market, but this online investment is more like extra money on the side.

“I can easily pay bills and withdraw when I need it,” he says. “I don’t care too much about the rates. After all, it’s still much higher than what the bank offers.”