'Bloodsucking' fund hits back at blogger

China's first online monetary fund Yu'ebao fired back at a Chinese TV commentator on Sunday who had called on regulators to ban the fund for being a bloodsucker that racks up the financing costs of corporations.

The annual fee charges of the fund including service and commission total 0.63 percent of assets rather than the 2 percent China Central Television (CCTV) commentator Niu Wenxin depicted as exorbitant profiteering, Alipay, the third-party payment service provider of e-commerce giant Alibaba Group and co-founder of Yu'ebao announced on its official Weibo on Saturday.

The online fund platform was a "financial parasite sucking blood from banks," Niu wrote in his personal blog on Friday.

It did not create value but pushed up financing costs to benefit from it, he claimed, and therefore should need to be clamped down upon.

Yu'ebao charges 2 percent and ratchets up the overall financing cost in China with its high yield, he alleged.

"While Yu'ebao and its partner monetary fund take a 2 percent yield into their own pocket and allocate 4-6 percent investment returns to millions of its investors, the overall economy and the end user of the money will have to foot the bill," Niu wrote.

The high yield did not cause the high financing cost, Wang Dengfeng, a fund manager at Beijing-based Tianhong Asset Management Co and also Yu'ebao fund manager, told the Global Times on Sunday. It only indicated the market rates reflecting the demand for financing, he said.

About 90 percent of the fund's assets are in bank deposits with a rate based on interbank lending annual rates which range from 5 to 7 percent in times of tight liquidity, much higher than the 0.35 percent rate banks offer to depositors' checking accounts.

"Yu'ebao has narrowed the bank's profitability," Wang said.

Without Yu'ebao, banks use cheap money raised from depositors to lend to corporations so they can earn a sumptuous profit margin, he said.

Thanks to Yu'ebao, banks have to pay higher rate in exchange for use of the fund where investors benefit.

Internet financing products like Yu'ebao made the situation worse for banks that are already suffering a slowdown in profits.

Since its launch in June 2013, Yu'ebao has skyrocketed as it allows Alipay users to channel small amounts of money into high-yield funds offering better returns than bank deposits, allied to the convenience of withdrawing money instantly into their Alipay accounts.

By mid January, the online fund had attracted 49 million Alipay users with total assets of 250 billion yuan ($41 billion) by mid January, becoming the largest monetary fund by assets.

An online poll at information portal sina.com showed that as of 11 pm on Sunday, 90.4 percent of the 22,437 correspondents opposed banning Yu'ebao, while only 6.3 percent agreed.

Given the monetary fund's small share of total deposits, it is unlikely the fund could control the money supply and push up rates, Zhang Taowei, a finance professor at Tsinghua University, told the Global Times Sunday.

China's monetary fund totaled 953.2 billion yuan by the end of January, official data showed, less than 1 percent of the total deposits of 104 trillion yuan.

Even if the online monetary funds were all banned, the money would tend to flow to the highest interest rate, Lu Zhengwei, chief economist at Industrial Bank, was quoted as saying by the Guangzhou-based 21st Century Business Herald on Sunday.

On top of Yu'ebao, other online wealth management products offer higher rates to investors than bank deposits, such as those promoted by Baidu Inc and Tencent's WeChat.

The China Securities Regulatory Commission is mulling tightening the risk control of monetary funds by asking the funds to raise provisions against potential risks if banks fail to pay the agreed interest rate, the Shandong-based Economic Observer reported on Sunday.