China Online Funds Pressure Deposit Ceiling, Ex-PBOC Vice Governor; Banks Want to Clamp Down on Money-Market Funds

March 12, 2014 Leave a comment

China Online Funds Pressure Deposit Ceiling, Ex-PBOC Vice Governor

Banks Want to Clamp Down on Money-Market Funds

March 8, 2014 4:03 a.m. ET

BEIJING—Online money-market funds are putting pressure on the central bank’s ceiling on bank deposit rates, but regulators welcome the development, a former vice governor of the People’s Bank of China said Saturday.

“Regulators are pleased by this development,” Wu Xiaoling told reporters on the sidelines of the annual session of China’s parliament. “Internet finance has given a big boost to the nation’s financial reforms.”

China maintains a ceiling on interest rates paid on deposits at the nation’s banks but it has vowed to make interest rates more market-based.

Online money-market funds, which aren’t subject to the limits, have been able to offer substantially higher returns, effectively helping regulators in their deregulation efforts, though raising concerns at the nation’s banks.

Chinese e-commerce giant Alibaba Group Holding Ltd. launched an online money-market fund called Yu’e Bao last June, and the fund had attracted more than 400 billion yuan ($65.4 billion) as of the mid-February.

Savings accounts offer a minuscule interest rate of 0.35% a year while a one-year fixed deposit can pay 3.3%. Yu’e Bao and other similar products provided by tech companies are offering about 6% a year.

Experts say online money-market funds have forced banks to offer similar products, but banks are lobbying regulators to clamp down on the money-market funds before they siphon off more of their deposits. These funds are investing in the interbank market and domestic bonds.

Central bank Governor Zhou Xiaochuan said this week that regulators want to refine regulations covering online funds but have no intention of cracking down on these competitors to the nation’s banks.

Although there were no systemic risks in the financial system, Ms. Wu suggested that there could be repayment problems for some investments.

Chinese solar company Shanghai Chaori Energy Science & Technology Co. (002506.SZ)on Friday became the first firm to default on a domestic corporate bond when it failed to make 89.8 million yuan due Friday.

The former central banker, who is now a senior legislator, said the default “could help expose risks in financial products.”

 

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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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