China money market funds expose cracks in banking

THE explosive growth of an online money market fund launched by the Alibaba Group last summer has exposed the cracks in China's banking system as regulators attempt to wean the country's banks off cheap money.

The Yu E Bao fund, now the country's largest with more than 500 billion yuan (S$102.4 billion) under management, has caused a stir in China - both for the threat it has posed to the country's banks and its rewards to its investors, who number 81 million and have exceeded the number of equity investors.

With the success of Yu E Bao, China's money market fund industry has grown from a bit player to a 953.2 billion yuan one as at January. Money market funds are not new in China, but Yu E Bao was the first to create economies of scale by pooling together small investors who park idle money in their accounts with Alibaba's online payment system.