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New financial products signal end of an era
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China’s new “baby boom” is not of the demographic variety. New financial systems and products are being born everywhere, bringing trouble to some and great expectations for many.
The financial baby boom started when Jack Ma’s online currency fund Yu’e Bao, meaning Leftover Treasure, grew from almost nothing to a global leader, with 50 million investors stumping up 400 billion yuan (US$65 billion) in just eight months.
The simple recipe of a low investment threshold and high yield has catapulted Yu’e Bao and partner Tian Hong Asset Management from obscurity last June to close to the top of the world today.
The miracle bred many envious copycats who began clawing at the market, scrapping for Internet investors, even going so far as to borrow auspicious characters in their names: “bao” means both baby and treasure in Chinese.
Niu Wenxin, a highly regarded commentator with national broadcaster CCTV, went so far as to call Yu’e Bao a “financial parasite” draining “blood” from banks.
When Niu described funds like Yu’e Bao as another “central bank” with variable yields and huge capital, his hidebound attempt to nullify the new funds got little support. Doubts and refutation flooded the Internet: What are these funds? Vampires or messiahs?
Angling for listing
The creator of Yu’e Bao, Alipay, is angling for a New York Stock Exchange listing. The proud parent company posted a long statement online, defending its fat offspring and pouring sarcastic scorn over Niu.
“Niu knows nothing about finance or innovation,” said a “financial analyst” with the screen name Yufenghui. Yufenghui thinks Niu epitomizes the old guard of monopoly finance. Another netizen, named Dongxingguilai, declared Yu’e Bao did not deserve such pressure because it is “neither great or vile,” just a money fund with successful marketing.
What’s really happening is that traditional banking is simply chasing the market. Products like Xian Jin Bao, or Cash Treasure, and Li Cai Tong, Finance Key, have been cobbled together by traditional banks, rendering Niu’s “parasite” metaphor something of a shambles.
The key to the dispute lies in the decisive role of the market, as stressed in China’s current economic reform in setting interest rates on deposits and loans.
The days of easy money from huge interest margins will soon disappear for the commercial banks, as the new babies take their first tottering steps.
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