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Alibaba’s maturity mismatch

YuE Bao offered investors more than 6% on an annualised basis at the end of last year. Recently, it has paid out just over 4%: only a little higher than standard bank deposits and less attractive than the wealth-management products sold by banks.

Sure enough, savers have started to look the other way. Inflows into the Yu’E Bao fund have ebbed. It received 130 billion yuan in the fourth quarter of 2013 and 356 billion yuan in the first quarter of 2014 – but only 33 billion yuan over the past quarter. As the first chart shows, inflows into Yu’E Bao are now moving in the opposite direction to the maturity of its assets, hardly the kind of trend that a fund wants to see.

Jack Ma, the founder of Alibaba, vowed last year to disrupt the banking sector by pushing into Internet finance. On that count, Yu’E Bao has lived up to its promise. Along with inspiring other tech companies to launch similar funds, Alibaba has also prodded banks into offering more investment products. Mr Ma should be applauded for helping to make China’s banking system more competitive. But if Yu’E Bao spawns trouble, the applause will not last.

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