Banks in the U.S. once gave away toasters and irons to lure depositors. Banks in China are upping the ante. With customers pulling out money and putting it into higher-yielding investments, they are offering Mercedes, iPhones, and daily deliveries of vegetables to sidestep interest rate caps and get people to stash some yuan in savings accounts.
Chinese banks are hemorrhaging their deposits, says Rainy Yuan, an analyst at brokerage Masterlink Securities in Shanghai. Chinas banks lost 950billion yuan ($154billion) of deposits in the three months through September, the first quarterly drop since 1999. In the first 11 months of the year, new deposits were 23percent lower than in the same period last year, Peoples Bank of China data show. Offering incentives to attract money is not the solution, Yuan says: There is no fix for this. All the efforts they made to win savers back will only push up the costs, so its a losing battle to fight.
23% Decline in new deposits in the first 11 months of 2014 vs. the same period last year. Savers seeking higher returns have been pouring money into online money-market funds offered by the e-commerce companiesAlibaba Group(BABA)andBaidu(BIDU). One fund, YuE Bao, started last year by Alibaba affiliate Alipay, drew 535billion yuan in its first 15months of existence from 149million customers, more than the populations of France and the U.K. combined. Users simply tapped a few buttons on their mobile phones to secure an annual rate of return that climbed as high as 6.8percent before falling to about 4percent recently.