New Investment Platforms Raise Questions for China's Banking System

The growth of large online investment platforms has captured the attention of Chinese authorities in recent months. Non-state enterprises such as Alibaba Group Holding Ltd., which runs the e-commerce website Taobao, and Tencent Holdings Ltd., a social media conglomerate that runs the popular WeChat online messaging program, are an emerging force in China's financial system.

The question is whether these online financing platforms could start to chip away at state-controlled banks' effective monopoly over the country's vast pool of household and corporate savings. For now, funds invested into new online financing platforms such as Alibaba's Yu'e Bao are equivalent to a little more than 1 percent of the state-controlled banking sector's roughly 74.2 trillion yuan ($12 trillion dollars) in consumer deposits. But the platforms are growing rapidly.

Their growth, and Beijing's official response to it, could affect the trajectory of China's plans for financial sector reform. More broadly, it could affect the country's financial and economic stability.