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TRADE WARS
China's Alibaba stalks banks with investment product
by Staff Writers
Shanghai (AFP) July 15, 2014


Japan messaging app Line eyes $9.8 bn Tokyo listing: report
Tokyo (AFP) July 15, 2014 - A smartphone messaging app set up in the aftermath of Japan's 2011 quake-tsunami disaster has applied to list on the Tokyo stock exchange, in an offering that could be worth more than $9.8 billion, a report said Tuesday.

Fast-growing messaging service Line, has submitted a formal application to Japan's main bourse, Dow Jones Newswires said citing an unnamed source, adding that it could list as early as the autumn.

The Tokyo-based firm is also considering a New York filing, the report said. However, the Tokyo exchange and Line declined to comment, with a company spokesman saying "nothing has been decided at the moment".

The app was set up in 2011 by the Japanese unit of South Korean Internet service provider Naver Corp. after the March 2011 tragedy damaged telecoms infrastructure nationwide, forcing staff to resort to online resources to communicate.

The resource was released to the public in June 2011 and now has more than 400 million registered users, mainly in Japan and Asia, while is growing fast in other parts of the world.

It lets users make free calls, send instant messages and post photos or short videos, combining attributes from Facebook, Skype and messaging application WhatsApp.

Line is widely seen as a competitor to WhatsApp, which Facebook agreed to buy for $19 billion, and WeChat, which is owned by Chinese giant Tencent Inc.

Line has forged heavyweight partnerships with Spanish football giants Barcelona and Real Madrid, brands such as Coca-Cola and tennis star Rafael Nadal.

One of Line's main selling points is its "stickers" -- funny, cartoon-like emoticons that users can post to friends.

As Chinese e-commerce giant Alibaba expands beyond online retail, it is shaking up staid state banks -- and drawing regulators' attentions -- after 100 million customers poured more than $90 billion into its investment product.

Alibaba, which is preparing for a multi-billion-dollar stock offer on the New York Stock Exchange that could rival Facebook's flotation, has already transformed the retail and logistics sectors in China.

Now its founder Jack Ma is seeking to remodel banking, in a bold move that challenges one of the pillars of the Communist Party's control over the economy.

China's banking sector is dominated by four state-owned banks, long criticised for high charges, poor service, and favouring loans to big state firms over small private companies.

"The financial sector needs a disrupter," Ma said last year. He has also said: "If banks don't change, we will make them change."

Since last June, users of Alibaba's online payments platform Alipay -- China's equivalent of PayPal -- have been able to put money into Yuebao, an investment fund that offers better returns than traditional bank deposits.

The name, "leftover treasure", shares a Chinese character with Alibaba's flagship site Taobao -- "search for treasure" -- which has more than 90 percent of China's online consumer-to-consumer market.

By the end of June, a year after it was launched, Yuebao had accumulated 574 billion yuan ($92 billion).

Earlier this year it surpassed the assets of city-level lenders such as the Bank of Ningbo and Bank of Nanjing.

"It's simple to use because I already know how to use Alipay," said Molly Zheng, who runs a fashion accessories store on Taobao and has poured more than $25,000 into Yuebao.

"It's much easier than online banking -- it can be easily done on my mobile phone."

- 'Coming of the wolf' -

A key driver of Yuebao's popularity is the paucity of choices available to Chinese savers. The stock market is perennially weak despite years of economic growth, property values are deflating, deposit rates are low, and investors are mostly barred from sending funds overseas.

Despite regular promises to loosen their controls, Chinese regulators still set deposit rates for banks, giving less closely regulated Internet financial products room to offer higher returns.

Unlike wealth management products sold by banks, Yuebao has no minimum requirements on investment or time period. Its seven-day annualised yield peaked at 6.76 percent in January, more than double China's benchmark one-year deposit rate of 3.0 percent, and now stands at around 4.17 percent.

With savers flocking to it, banks are predicting a doomsday scenario. One Chinese estimate said Yuebao could potentially slash eight percent off the net profits of the entire banking sector over the next three years combined.

"The emergence of Yuebao is in fact the coming of the wolf," an anonymous banker told state media last month. "Its rapid rise in scale has dealt a blow to banks. Because of Internet finance, banks now feel cornered and miserable."

An influential commentator for China's state television broadcaster, Niu Wenxin, went further, launching a diatribe against consumer choice on his blog. "Yuebao is a bloodsucker on banks, a typical financial parasite," he wrote.

"By giving the public some petty benefits, it earned fat profits for itself while letting the whole of society pay the cost," he alleged.

Banks will be forced to increase lending costs because Yuebao is cutting into their profits, he argues.

- 'Catfish effect' -

But independent analysts say competition from Yuebao could help force Chinese banks to prepare for further financial reforms.

Authorities have already freed lending rates and vowed to liberalise deposit rates for the yuan currency.

"Yuebao should be interpreted as the booster for China's interest rate liberalisation," said Liu Shengjun, director of the finance research centre at the China Europe International Business School in Shanghai.

"Our big banks are least capable of innovation and in this sense we're in urgent need of the Internet to drive innovation," he added.

At present the world's second-biggest economy has only a handful of small private banks, but Alibaba has applied for a banking licence under a pilot scheme to develop more privately-owned banks.

Liu said Alibaba could have a "catfish effect" -- the belief that a strong competitor can lift the performance of the whole sector.

Other Internet companies have followed Alibaba. China's dominant search engine Baidu launched a similar investment product late last year while Tencent, parent of China's most popular messaging app WeChat, followed in January.

Although Alibaba founder Ma has cast himself as an outsider, his company's success -- and the employment and tax revenue it has generated -- has drawn the appreciation of government officials.

"Be in love with the government, but don't marry it," he once said.

Tellingly, authorities have so far tolerated Yuebao and its fellows, although they have signalled more regulations on Internet finance.

"We didn't have strict regulatory policies in the past, but in the future some policies will be perfected," central bank chief Zhou Xiaochuan said in March.

But he added: "We definitely won't ban financial products like Yuebao."

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