“Of course, when people bury treasure nowadays they do it in the Post-Office bank.” If only Sherlock Holmes were around to crack this case. There is treasure in China that pays just under 6 per cent – annualised, on demand – on cash that would earn about 3 per cent in one of the country’s banks. How does Yu’e Bao (“leftover treasure”), an online money market fund from Alibaba’s ecommerce stable, do it?
It is quite elementary. Yu’e Bao rakes in renminbi from Alibaba users, usually via mobile phones and in small amounts. Banks then pay Yu’e Bao for access to the capital so collected – all Rmb500bn ($81bn) of it, after just nine months in the business. That is already enough to rank Yu’e Bao with the Vanguards and Fidelitys at the top of the money market universe.
Chinese banks are – for now – willing to pay Yu’e Bao enough to make the 6 per cent return it pays feasible. No surprise; it is hard to drum up retail deposits when they offer negative real returns. China’s bank regulations cap retail rates at about 3 per cent for a one-year fixed deposit.