After raising 400 billion yuan ($66 billion) from its users, Yuebao, an online financial product launched by China’s Internet giant Alibaba, is facing accusations that it disrupts financial balance and erodes bank lending, thus affecting China’s economic health.

A commentator said if people start rushing to withdraw their bank deposits to put them in Yuebao, banking capital available for lending to enterprises would decrease, which in turn would increase interest rates and jeopardize the vitality of the whole economy.

?Xin Zhiming

Although it looks like the argument has logic, it is actually without merit.

The money generated by Yuebao remains a drop in the ocean of the overall banking deposits. China’s bank deposits exceed 100 trillion yuan. It is hard for Yuebao and its likes to change the status quo in the short term.

Even if the scale of online financial products continues to grow and threaten the dominance of banks in the future, it should not become a reason to control their growth as these products are a result of free-market economy and in line with China’s interest rate liberalization reforms.

The popularity of online financial products, such as Yuebao, is primarily because of the high returns they can offer — now about 6 percent, compared with 0.35 percent interest rate offered by banks for demand deposits.

If banks feel threatened, they should try to raise savings rates or launch similar products to compete with Internet finance companies.

If there is any sector that affects the vitality of the Chinese economy, it is the banking industry.

Thanks to their market monopoly and State control of interest rates, banks can lend to the corporate sector at rates much higher than those of savings. For example, the one-year benchmark savings rate is 3 percent, but they can lend the money to enterprises at about 10 percent.

The gap is much bigger compared to many international banks, which means domestic banks can make easy money simply through attracting more savings. They do not need to worry much about competition or innovation.

A poorly efficient banking sector is no doubt detrimental to proper distribution of financial resources and affects the health of the economy as a whole.

The rise of Internet finance has brought hope. Some banks have been forced to launch similar products in an attempt to woo savers. If this competition continues, banks may hopefully improve their services to better survive in the market, which will benefit individuals, enterprises and the economy.

Therefore, what regulators need to do is not try to dampen the growth of Internet financial products but to further liberalize the financial market, so that freer competition leads to better services.

What regulators should monitor is illegal activity by providers of online financial products so that investors are not cheated, and not control Internet finance itself.