How Will Chinese Banks React To Baidu’s Financial Services Platform And The Rise Of Bitcoin?

 
 
 

On Monday, Baidu, China’s counterpart to Google, launched a financial services platform that it has christened “Baifa,” which will offer mutual funds, loans, and insurance to online users, according to Reuters. In under five hours yesterday, 120,000 users invested 1 billion RMB ($164.3 million), though the system did suffer glitches.

The new financial product is the latest proactive step the search engine has taken as it eyes a possible U.S. IPO; to date, 2013 has already been a year of aggressive purchasing for Baidu. Now, with a foot submerged in financial services, Baidu has oriented itself towards territory that other Chinese internet conglomerates are just beginning to explore.

On June 13, e-commerce giant Alibaba launched a financial product under the auspices of Alipay, a service akin to Paypal, called Yu’ebao, which accumulated 2.5 million users before the end of that month. The Global Times reported that Baidu’s new financial service would resemble Yu’ebao, allowing users to “transfer their balance in their [Alipay] accounts into a money market fund.” Both companies have partnered with asset management companies to produce online wealth products.

In extending their reach to financial services, Baidu and Alibaba have joined a party dominated by China’s state-owned banks. As Chinese banking guru and economist Joe Zhang noted in his most recent book on the Chinese shadow banking industry, online financial services could become a successful lender of safe loans to small businesses.

“Alibaba operates an online e-commerce platform which has a huge number of small merchants buying and selling products and services on it,” Zhang writes. “Given the electronic record of these merchants, and the stickiness of these merchants, Alibaba is uniquely positioned to provide these merchants with loans at a competitive rate and at unbelievable speed.”

Alibaba and Baidu have now taken the first step towards becoming deposit takers and lenders. Whether they will force new behavior in Chinese state backed banking industry, with its uncompetitive interest rates and unfriendly stance towards small debtors, remains to be seen. The Chinese Securities Regulatory Commission has already forbidden Baidu from offering a guaranteed return of 8% on its online money market fund — almost double the return of Yu’ebao — but the regulatory atmosphere generally looks promising for those planning to elbow their way into China’s banking industry.

Baifa also emerges on a wave of Chinese enthusiasm for Bitcoin, thanks to Baidu’s announcement earlier this month that it would accept Bitcoins for a service called Jiasule, a content delivery network and firewall service. According to one view, other parts of the company will soon follow suit. But a skeptical view holds that that Baidu does not yet have the ability to introduce bitcoin on a company wide scale.

Like other developing economies, though, China’s appetite for bitcoins looks large. BTC China, a bitcoin trading platform, currently ranks third worldwide in terms of exchange volume. According to Wired, bitcoin trading in China led to last week’s global surge in price, though at least one Chinese onlooker believed demand was driven by international investors, not Chinese. But even in a pessimistic scenario, bitcoin has made in-roads in China. How far will Baidu take it?