Online financial firms under PBOC scanner

China's central bank is leading the government's effort to stem potential risk from online investment products, according to a report in The Wall Street Journal.

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The report, quoting people with direct knowledge of the matter, says officials are worried that investors often don't know where their money is being placed and are vulnerable to theft of personal information. The step to counter any negative fallout gets underway as concerns remain over potential disruptions in the country's vast but opaque shadow-banking system.

The move comes as the country's technology giants are muscling in into businesses dominated by traditional banks with high-yielding wealth management products, soaking up tens of billions of dollars worth of investors' money, says the report.

These products, notably Yu'E Bao, Licaitong and Baifa, launched respectively by an affiliate of e-commerce giant Alibaba Group Holding Ltd as well as by rivals Tencent Holdings Ltd and Baidu Inc, offer higher yields than bank deposits and are easy to access with smartphones and other gadgets.

Officials stressed that they hope that the Internet companies could still play a role in making China's financial system more competitive, improve the flow of lending to small businesses and encourage greater competition from State-owned banks.

"The goal is not to crackdown on the sector, but to foster its healthy development," said the report citing an official at the People's Bank of China.

Currently, Yu'E Bao offers rates of about 6 percent, compared with the maximum of 3.3 percent banks can offer on deposits under Chinese regulations.

Other leading Internet companies, including Tencent, Baidu and NetEase, are also taking a piece of the cake by offering even higher returns.