China's banking sector, already under the shadow of a credit crackdown and concerns over bad debt, may face a new headwind with the country's Internet players entering – and disrupting – the market.
"China's internet giants are mobilizing millions of individuals to take on the big banks, forcing well-fed bankers to cough up a fair deal on yields on cash deposits that conventionally have been taken as a given under the existing suppressed deposit rate regime," Steve Wang, chief China economist at financial services group Reorient, said in a note.
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In the past six months, Yuebao – a venture under the wing of Internet giant Alibaba – raised around 250 billion yuan ($41.3 billion) from money market investments offering rates much higher than the around 3 percent benchmark time-deposit rates. The offering has become China's largest fund product.
Starting this Friday, pre-registered Yuebao account holders will be able to put money into a principal-protected 12-month term deposit with an expected yield of 7 percent, Wang noted.