Posted inRegulation

China tightens hold on $780bn MMF industry

Chinese regulators continue to rein in money market funds with new rules, but Tencent has launched its own MM product to compete with Yuebao, the world's largest.

The new provisions seek to further strengthen the liquidity management of money market funds, according to a statement from the China Securities Regulatory Commission (CSRC).

According to the new rules (PDF, in Chinese), money market funds cannot hold more than 10% of assets in instruments with a credit rating below AAA.

Funds also cannot hold assets from a single bank worth more than 10% of the bank’s net assets, and assets from a single institution may not exceed 2% of the fund’s net assets.

Another regulation, which was previously proposed, is that net assets of all money market funds managed by a single house must also not exceed 200 times the firm’s provisions for risk.

The CSRC first drafted a consultation about the liquidity management of money market funds in March. The new provisions will take effect in October.

Liquidity risk

In China, three funds dominate the money market fund industry, accounting for one-third of the category’s total assets. The concentration of assets among three funds raises concerns about liquidity risk in the event of significant redemptions, according to a Fitch Ratings report.

The largest fund is Tianhong Asset Management’s Yuebao, which is also the world’s largest money market fund with with RMB 1.43trn of assets under management, accounting for 28% of China’s RMB 5.1trn money market fund industry.

Yuebao is distributed via Alibaba’s online payment platform, Alipay. Launched in 2013, Yuebao was a first of its kind product offered in China and quickly gained popularity, amassing around RMB 100bn in assets from 30 million investors just six months after it was rolled out.

“The money market fund managed by Tianhong has also grown to more than 20% of the whole money market product market in China, which would inhere significant risk to the market overall, and this is not something that the regulator would love to see,” Li Yiming, Shenzhen-based manager research at Morningstar China, told FSA earlier.

The second largest manager of money market funds in China is ICBC Credit Suisse with RMB 340bn in AUM. It has two funds that accounted for 7.6% of the MMF market at the end of March.

Tencent joins the MM party

Just after the CSRC released the new rules, China’s internet giant Tencent started testing a new service on its WeChat messaging app that allows users to earn interest from their WeChat balances, according to local media.

The new service, Lingqiantong, is said to compete directly with Alibaba’s Yuebao. It was launched on Monday as a test for a limited number of WeChat users, according to a Global Times report.

Under the service, users can generate interest with a seven-day annualised return of 4.135%, the Global Times report said, quoting an unnamed source at Tencent.

Tencent’s WeChat already launched a similar service in 2014 called Licaitong. However, unlike Yuebao, Licaitong does not allow users to make investments using their WeChat balance and requires them to pay using their bank accounts, according to a Caixin Global report.

FSA sought more information from Tencent, but the firm did not reply to queries in time for publication.

Part of the Mark Allen Group.