By Li Hongmei

In a mere eight months following its establishment, the collaborative efforts of Alibaba and its wholly-owned subsidiary Tianhong Asset Management have managed to bring the collective value of its online financing tool Yu'ebao to more than that of 1,000 municipal banks in China. The mutual fund has topped 500 billion yuan (US$81 billion) in scale, according to media reports.

Commercial banks have had a mixed response to the meteoric rise of Yu'ebao.

Some are rushing to set up similar monetary market funds to contain its onset while urging government authorities to intensify inspection of online financing to the standard of conventional banking. On the other hand, they continue to rake in the enormous deposits from the site, as 90% of its funds are stored in traditional banks.

On Feb. 25, the China Banking Association resolved to have member banks cap deposit interest rates for online funds at 1.1x the corresponding benchmark rate and lower interest rates to the level of demand accounts or inflict fines on the premature withdrawal of timed deposits by online funds. The resolution marks the end of the honeymoon between online funds and banks, according to insiders.

The phenomenon also underlines the issue concerning the regulation of online financing, especially after it has grown to mammoth proportions.

The latest data show that as of Feb. 26, over 60 million subscribers had handed over their funds to Yu'ebao for custody, mainly due to the attraction of high yield rates reaching 6.114% per annum.