Baidu triggers alarm bells with launch of Baifa mutual funds

A Baidu ad device at an expo in Nanjing. (Photo/CFP)

A Baidu ad device at an expo in Nanjing. (Photo/CFP)

Chinese internet search giant Baidu on Oct. 28 launched its first online wealth management product, Baifa, but within just one hour Baidu crashed due to the large surge of visits, resulting in a failure to take registrations on the Baifa accounts in several places such as Beijing and Shanghai, the online edition of the Chinese-language Economic Observer reports.

During its promotional period, Baifa claimed an 8% yield for the mutual fund product, which sounded alarm bells at the national securities regulator for being above the maximum permitted limit.

Later that day, Baidu announced that Baifa had sold wealth management products worth more than 1 billion yuan (US$164 million) within just five hours, with the number of its clients exceeding 120,000, reaching the quota for its founding members.

Baidu is working with China Asset Management Co to launch Baifa, a money market fund seen as the investment product with the lowest risk in the wealth management field.

During Baifa’s promotion period, its ads mentioned an 8% yield, which is misleading because a money market fund can have a yield of at most 5%. Last Friday, the China Securities Regulatory Commission convened many mutual funds firms and Baidu, stressing that all publicly raised mutual funds must follow the regulation not to mislead investors by guaranteeing yields. Baidu refrained from further mention of an 8% product yield, although seemingly it had already had the desired effect.

Many financial institutions aren’t optimistic about Baidu’s move, or rather they remain cautious, because Baidu lacks a professional team like Alipay and it doesn’t have Tencent WeChat’s micro-paid mobile end users. Baidu hasn’t got the recognition necessary in relation to either products or awareness of the related risks, the institutions believe.

However, in the internet era there is rising opportunity once a new platform is established. That’s why China Asset and Baidu have agreed to go ahead with their partnership.

Financial risks are closely related to fund yields. No matter what kind of strategies are used to promote these companies, the financial institution partner, in this case, China Asset, must take the actual responsibility in controlling the financial risks within, the report said.

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Wednesday, October 30th, 2013 EN

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