BEIJING---Bank deposits invested by China's money-market funds,
including the hugely popular Yu'e Bao, should be subject to reserve
requirements just as traditional bank deposits are, a central bank
official said.
In an opinion piece published Monday in the central bank-backed
Financial News, Sheng Songcheng, head of statistics at the People's
Bank of China, repeated a call for making reserve requirements
apply to money-market funds --just like the nation's banks--though
he said reserves should be made indirectly.
Funds should be parked with the central bank by the commercial
banks that hold funds on behalf of these investment companies, he
said.
Mr. Sheng said the annualized return of Yu'e Bao would be
reduced by one percentage point if there were a 20% reserve
requirement on the portion of its money placed as deposits with
banks. Major banks need to keep 20% of their deposits in
reserve.
Alipay, an affiliate of Alibaba Group Holding Ltd., launched the
popular Yu'e Bao fund in June last year. Its success has prompted
rival technology firms Tencent Holdings Inc. and Baidu Inc. to
offer similar products.
The fund behind Yu'e Bao is now the world's fourth-largest
money-market fund, according to Morningstar Inc., with $87.05
billion in holdings as of the end of March.
A spokeswoman for Alipay's parent, Small & Micro Financial
Services Group, declined to comment. Alibaba Chairman Jack Ma and
other Alibaba managers hold major stakes in Alipay's parent. Alipay
was separated from Alibaba in 2011.
Yu'e Bao now offers a return of about 5% to investors, well
above the maximum 3.3% that banks can offer on a one-year fixed
deposit.
Under current rules, Chinese banks aren't required to set aside
reserves for deposits from most other financial institutions,
including fund management firms. These deposits are typically
restricted to use in loans to banks and other financial
institutions. They also aren't included in the loan-to-deposit
ratio that covers other deposits from individuals and nonfinancial
enterprises.
"Deposits from [investment] company funds aren't subject to bank
reserve requirement management, which is the main reason for Yu'e
bao attaining such high returns," said Mr. Sheng in the
article.
In a report last week, the PBOC said Internet banking services
such as online investment funds have brought innovation to the
financial sector, without citing specific companies. But the
central bank also said they needed to be subject to more
supervision, including unspecified "capital constraints."
Online investment funds like Yu'e Bao have become popular with
the Chinese public. Their appeal has posed a challenge to the
state-controlled banking system, which is moving to keep deposits.
Some Chinese state bank officials have called for tighter
restrictions on the new sector.
Grace Zhu
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