Funds launched by the likes of Alibaba have been lambasted as parasites that are endangering China’s economic health by a prominent commentator, the latest salvo in a battle that pits new online funds against the traditional banking system they are shaking up.
The war of words over the weekend is a sign of the growing controversy over the online investment funds, which were launched less than a year ago but have already upended traditional business models in China’s banking system.
Alibaba, the ecommerce company behind the biggest of the funds, shot back at the criticism, saying that its product is providing a service to the economy by putting more money in ordinary people’s hands.
The Chinese government caps bank deposit interest rates to limit what it fears could be damaging competition in the financial sector. Online investment funds offered by internet companies such as Alibaba and Tencent have blown a hole in that ceiling by giving savers direct access to money-market funds.
Thus depositors receive a maximum 0.35 per cent, while those investing in the Alibaba and Tencent funds are more than 15 times better off with an annual rate of 6 per cent – prompting a rechannelling of cash from banks to online funds.
Regulators have so far done little to crimp the online funds’ development, viewing them as healthy innovations. But the attack by Niu Wenxin, a financial editor with the state broadcaster China Central Television, suggests they could begin to face tougher opposition. Mr Niu called for the outright prohibition of Alibaba’s Yu’e Bao fund.
“It is attacking the financing costs of Chinese society as a whole and attacking the overall economic safety of China,” he wrote in a blog post published on Friday. “Yu’e Bao is like a vampire that has climbed on to the body of banks.”
With Mr Niu’s comments circulating widely, Alibaba used its official microblog early on Saturday to fight back. In a post calculated to appeal to the general public, Alibaba said its fund was helping to make working people richer and the economy stronger.
“I used to have just two steamed vegetable buns in the morning. Now I can have two meat buns! This motivates me to work that much harder for our motherland’s economy every day,” Alibaba said.
Additional reporting by Emma Dong