A Chinese internet money market fund that launched just nine months ago now has more investors than the country's equity markets, in a sign of how quickly reforms are reshaping China’s financial services industry.
The total number of investors in Yu'e Bao, an online fund launched by ecommerce giant Alibaba Group in June last year, topped 81m at the end of February, compared with about 77m active equity trading accounts in the whole country at the start of this month.
The explosive growth has propelled Yu’e Bao, which means "leftover treasure", up the global rankings of the biggest money market funds.
Senior Chinese financial officials told the Financial Times that it had accumulated at least Rmb500bn ($81.4bn) in deposits by the second week of March, making it the fourth-largest money market fund in the world, according to Lipper, a data provider.
Investors have been attracted to Yu'e Bao and other online funds by annual interest rates of about 6 per cent for deposits that can be withdrawn on demand, compared with the government-imposed upper limit of 3.3 per cent that banks can offer on one-year deposits.
The rate for ordinary demand deposits in savings accounts at major banks is just 0.35 per cent a year. The rapid expansion in a sector that did not exist a year ago has led to warnings that it could pose risks to China's debt-laden economy.
"These [new internet financial products] have the potential to topple the Chinese financial system into the abyss," said Lv Suiqi, deputy head of Peking University's finance department.
But the Chinese government appears eager to continue with financial reforms, including interest rate liberalisation and deregulation of the state’s monopoly in financial services.
In his annual State of the Union address to China's ersatz parliament last week, premier Li Keqiang pledged that his government would "promote the healthy development of internet banking".
Intense investor interest in Yu'e Bao and the flood of copycat offerings from companies such as Baidu and Tencent is especially evident from growth rates in the past two months.
The number of Yu’e Bao depositors rose from 49m as of January 15 to 81m by February 26, according to Tianhong Asset Management, Alibaba's partner in the venture.