A number of Chinese internet-based financial products, such as Alibaba's Yu'ebao, are facing diminishing earning yields mainly due to the amount of liquidity in the money market and because banks have launched their own online financial products, which offer even higher yields, the Chinese-language Guangzhou Daily reports.
The People's Bank of China has also said that the reserve requirement ratio (RRR) should be extended to more financial institutions, including those operating online.
Sheng Songcheng, who heads the data department at the central bank, wrote in an article that in China, bank deposits for monetary market fund investments should be subject to the management of a deposit reserve ratio. This had also added to the risks posed to the falling profitability of online financial products.
Sheng stated in an article posted on the website of Chinese-language Shanghai Securities News on May 4 that 95% of funds raised by Yu'ebao, totaling 500 billion yuan (US$80 billion), was deposited in banks, and thus it was reasonable to have an RRR levy on it.
With abundant liquidity in the market and significant declines in the inter-bank lending rate, the rate of return for several online financial products before the Chinese New Year in late January had fallen below 6% and further to below 5% around Labor Day on May 1. Even the more lucrative Yu'ebao's rate of return was approaching 5%, according to the report.
Analysts predict that judging by the current developments in the market, the yields for internet-based financial products will continue to fall to around 4%.
The foray by banks into the online financial products and services sector could deal a further blow to the business of the Yu'ebao-led online financial industry, according to the report.
Between April 21 and 27, 1,056 financial products offered by banks were due, with an average yield rate of 5.33%, with one reporting the highest annualized yield of up to 8%.
During the weeklong May Day holiday, five banks had launched 14 types of financial products, with their average yield rate expected to be 5.68%.
