China Baidu’s financial foray shows online finance rush; Baidu triggers alarm bells with launch of Baifa mutual funds

China: Baidu’s financial foray shows online finance rush

Oct 29, 2013 11:28am by Lydia Guo

Baidu, China’s dominant search engine, started its online financial service on Monday in an attempt to compete with rivals such as Alibaba, who have already pushed aggressively into Chinese financial sector. It wasn’t exactly smooth running. Baidu’s financial services platform made its debut on October 28, introducing a financial product in conjunction with China Asset Management, which was offering an 8 per cent annual return in its original promotional material. However, the ad fell foul of the financial regulator, and the site was overwhelmed with traffic. The missteps show how much of a rush the big internet companies are to get into online finance. The China Securities Regulatory Commission said on its official Weibo account that it is against the rules to estimate or promise the return of a fund. CSRC said it would verify whether Baidu has followed compliance rules based on written documents submitted by the company. Baidu has already pulled the 8 per cent advertisement and said it would “offer [a] better online financial service experience under the guidance of relevant regulators”. But many of Baidu customers were frustrated on the service’s first day. People hungry for the attractive yields couldn’t log into the platform for much of the morning, and those who managed to log in complained the complexity of process. Baidu said that the platform problem was because of too many visitors – hardly a good excuse from China’s biggest internet company. The service was back to normal in the aftern on, and with more than 120,000 users the Rbm1bn product was oversubscribed.Baidu’s product is similar to Alibaba’s Yu’erbao, which allows users to invest money stored in Alipay, a third-party online payment service, in a money market fund managed by Tian Hong Asset Management. Alibaba purchased 51 per cent of Tian Hong for Rmb1.18bn ($) in October.

By the end of September, the size of Yu’erbao had reached Rmb55.65bn ($), with more than 160m registered users, according to Alipay.

The success of Yu’erbao highlighted the huge opportunity of online finance in China. Other companies are eyeing the market too: Tencent, the online game company and chat provider, has introduced its own third party payment service and confirmed that it is applying for a banking license as a minority shareholder.

The rush to launch new ventures has somewhat overwhelmed the old regulator. When Alibaba launched its financial product Yu’erbao back in July, CSRC asked Alibaba to complete all it’s own paperwork to avoid investigations and punishments. Baidu’s new offering shows that both the regulator and the companies themselves are still working out the new market.

Baidu triggers alarm bells with launch of Baifa mutual funds

Staff Reporter

2013-10-30

Chinese internet search giant Baidu on Oct. 28 launched its first online wealth management product, Baifa, but within just one hour Baidu crashed due to the large surge of visits, resulting in a failure to take registrations on the Baifa accounts in several places such as Beijing and Shanghai, the online edition of the Chinese-language Economic Observer reports.

During its promotional period, Baifa claimed an 8% yield for the mutual fund product, which sounded alarm bells at the national securities regulator for being above the maximum permitted limit.

Later that day, Baidu announced that Baifa had sold wealth management products worth more than 1 billion yuan (US$164 million) within just five hours, with the number of its clients exceeding 120,000, reaching the quota for its founding members.

Baidu is working with China Asset Management Co to launch Baifa, a money market fund seen as the investment product with the lowest risk in the wealth management field.

During Baifa’s promotion period, its ads mentioned an 8% yield, which is misleading because a money market fund can have a yield of at most 5%. Last Friday, the China Securities Regulatory Commission convened many mutual funds firms and Baidu, stressing that all publicly raised mutual funds must follow the regulation not to mislead investors by guaranteeing yields. Baidu refrained from further mention of an 8% product yield, although seemingly it had already had the desired effect.

Many financial institutions aren’t optimistic about Baidu’s move, or rather they remain cautious, because Baidu lacks a professional team like Alipay and it doesn’t have Tencent WeChat’s micro-paid mobile end users. Baidu hasn’t got the recognition necessary in relation to either products or awareness of the related risks, the institutions believe.

However, in the internet era there is rising opportunity once a new platform is established. That’s why China Asset and Baidu have agreed to go ahead with their partnership.

Financial risks are closely related to fund yields. No matter what kind of strategies are used to promote these companies, the financial institution partner, in this case, China Asset, must take the actual responsibility in controlling the financial risks within, the report said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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