Baidu Raises Eyebrows by Promising High 8% Yield on New Investment Product; Baidu Can’t Guarantee Returns on Online Fund Products, CSRC Says

10.23.2013 16:28

Baidu Raises Eyebrows by Promising High Yield on New Investment Product

Search engine company pledges 8 percent return, but then deletes the weibo post that made the guarantee

By staff reporter Liu Zhuozhe

(Beijing) – Baidu, China’s version of Google, is in the spotlight over exceptionally high returns it promised for an investment product the company plans to unveil. The search engine firm said on October 21 on weibo, the country’s Twitter-like microblog service, that it will introduce a wealth management service on its website on October 28 in cooperation with China AMC, the largest public fund management company in China. The service, called Bai Fa, will have an annual yield of 8 percent and investors can withdraw money from their account at any time, the announcement said. Baidu did not explain how it works.Analysts say Bai Fa sounds like Yu E Bao. The latter is a money market fund offered through e-commerce company Alibaba. Since it was launched in June, Yu E Bao has attracted total investment of more than 20 billion yuan and made the company that manages the fund one of top brands in the country.

Those who suspect Bai Fa will be a money market fund say Baidu may be engaging in sketchy advertising because most money market funds yield only 3.5 to 4 percent a year. Few hit 6 percent.

They also question the way Baidu phrased the announcement. Securities investment and wealth management products are legally barred from promising any level of return to investors. Thus, they tell investors that yields are “expected” rather than certain.

Without this word, as critics point out, Baidu is in fact guaranteeing a yield. The search engine company has removed the weibo post and deleted all promotional messages on its website that mentioned an 8 percent return.

A company spokesman said on October 22 that the post was removed because it “fell out of line with financial regulations.” Baidu does not guarantee the full repayment of the principal investment or any gains, a company executive said.

Baidu has arranged for a state-controlled guarantee company, China National Investment & Guaranty Co. Ltd., to ensure investors can get paid even when the fund fails. Baidu said the arrangement was a method to “essentially eliminate the risk of loss.”

It remains unclear how that guarantee works. China National Investment & Guaranty Co. declined to comment.

A source from China AMC said the fund company will be operating a money market fund for the Bai Fa scheme. Any difference between the level of the fund’s return and the yield Bai Fa eventually hands out to investors, if there is any, will be determined and managed by Baidu, he said.

That makes analysts wonder whether Baidu will use its own money to increase Bai Fa’s investment return, for the sake of advertising and attracting users.

A document obtained on Bai Fa from a Baidu source says total investment in the money market fund will be capped at 1 billion yuan and investors can hold it for two months at most.

When the two months are up, the money will be either returned to the bank account it came from, or sent to an account with China AMC, the source said. Investors can continue to hold units in the money market fund through the China AMC account.

The limit on investment and its short duration would mean it is financially possible for Baidu to make up the difference with cash out of its own pocket, analysts say.

 

Baidu Can’t Guarantee Returns on Online Fund Products, CSRC Says

By Bloomberg News – Oct 23, 2013

Baidu Inc. (BIDU) isn’t allowed to offer guaranteed returns on fund products sold on the Internet, China’s securities watchdog said, as the country’s largest search engine joins competitors in expanding into finance.

The China Securities Regulatory Commission said it will investigate media reports, which it didn’t further identify, that said Baidu promised an 8 percent return on investment products, according to a statement posted to the commission’s official microblog yesterday. That probe will be carried out using information provided by the company, it said.

Baidu, which this week announced plans for an investment platform, joins rivals Alibaba Group Holding Ltd. and Tencent Holdings Ltd. (700) in entering financial services after authorities said they wanted more private capital to invest in the industry. Former Premier Wen Jiabao said in April 2012 the “monopoly” of big state-owned banks need to be broken, and his successor Li Keqiang has called for cutting the government’s economic role.

China’s five-biggest banks are all state-owned. Shang Fulin, head of China’s banking regulator, said in June that the nation will allow fully private banks to be established.

Baidu is subject to the same rules as other companies offering such services, the CSRC said yesterday. Kaiser Kuo, a spokesman for Baidu, said by phone yesterday that he couldn’t confirm whether the company will offer a guaranteed rate of return. The search engine plans to issue more details about the products on its investment platform on Oct. 28, the company said on Oct. 22.

To contact Bloomberg News staff for this story: Regina Tan in Beijing at rtan87@bloomberg.net