Alibaba isn’t a bank. But for customers it’s getting hard to tell the difference. Users of China’s dominant e-commerce website can now deposit funds, make investments, take out loans and even give out gifts of virtual cash. In taking on China’s lenders, Alibaba and its online rivals may be taking on bank-like risk.

Banks typically offer savings, loans and transactions. Alibaba’s foray into finance has seen it target all three.

While the amounts remain small compared with China’s towering mainstream lenders, the growth rates have been rapid. No wonder: state-owned banks have for years benefited from a tightly-regulated oligopoly.

Alibaba has long handled payments through Alipay, its version of PayPal. Now it allows users to invest surplus cash through a service called Yu E Bao. The funds, which are invested in low-risk securities like government bonds and interbank loans, offer a return of about 6 percent, double what savers get on one-year bank deposits. It’s a money market fund, not a bank deposit. But for customers there is little substantive difference.

Alibaba is now getting into longer-term investments. A fixed-term product launched through Yu E Bao on Friday would give customers an expected 7 percent yield, by investing in property and equities among other things.
The company also offers loans to small and medium-sized companies who sell on its Taobao marketplace. By February it had made 170 billion yuan (US$28 billion) of loans. While Alibaba doesn’t have a bank’s lending expertise it does have masses of data on borrowers’ transaction habits.

The clever part is that Alibaba isn’t doing the financial heavy lifting. Yu E Bao and the new fixed-term product are structured and operated by third parties. The e-commerce group acts as a conduit. Alibaba isn’t technically on the hook for users’ cash, nor does it pick investments, according to a person familiar with the situation.
Liquidity risk

Strictly speaking, this means Alibaba isn’t taking the liquidity risk that banks face if depositors decide to withdraw their money en masse. That is why it doesn’t need a bank deposit-taking licence, and avoids onerous regulation from the central bank.

But Alibaba is straying into a grey area. China’s immature financial industry still hasn’t been through decisive tests of who takes responsibility when investments go wrong. For Alibaba, this risk may be heightened. Its users are young and financially unsavvy ? Yu E Bao savers have an average age of around 28 ? and trust for Alibaba’s brands runs high, thanks partly to founder Jack Ma’s self-styling as a champion of the little guy.

Even if Alibaba has no explicit responsibility to pay back investors, it may decide to do so to protect its reputation. The situation with Yu E Bao is further complicated by the fact Alibaba owns 51 percent of Tianhong, the fund management company that structures the products.

For now, Alibaba and its online rivals are more of an annoyance for banks than a real threat.

But while Alibaba is decidedly not a bank, the biggest risk is that customers treat it like one. If that happens, it’s a fair bet regulators will too.

Beijing - A Chinese court jailed a blogger for three years on Thursday, state media reported, the first person to be sentenced in a government-led crackdown on so-called internet rumours.

Qin Zhihui - among hundreds of bloggers reportedly detained in an official campaign to assert greater control over China's popular social media - was found guilty of "slander" and "picking quarrels and provoking troubles", state broadcaster CCTV said.

China has said the rumour crackdown launched last year is aimed at maintaining social order, but rights groups have accused Beijing of limiting freedom of speech online to protect the ruling Communist Party.

Prosecutors at a Beijing district court said Qin had "impacted society and seriously harmed social order" by posting a series of inaccurate reports on Sina Weibo, a Chinese equivalent of Twitter, the official Xinhua news agency said.

It added that the 30-year-old had posted several false reports, including one saying Beijing had granted 200 million yuan ($32.2m) in compensation to a foreigner who died in a train crash in east China.

Reports said Qin had run a "black PR" firm, taking money from companies to post comments online discrediting rivals. He pleaded guilty and apologised for his crime at a hearing last week, Xinhua said.

Separately, Chinese-American blogger and outspoken government critic Charles Xue was released on bail on Wednesday after being arrested in August for suspected involvement in prostitution and "group licentiousness", a euphemism for group sex.

The 60-year-old Xue had attracted 12 million followers on Weibo, and during his detention was shown making an apology on state television.

Authorities judged he "no longer posed a danger to the public", the state-run Global Times newspaper said on Thursday, adding that the blogger was suffering from an illness.

Chinese micro-blogs have become drivers of public opinion in recent years, with comments drawing attention to official corruption, pollution and other issues.

Under regulations announced last September, Chinese internet users may face three years in prison for writing defamatory messages that are re-posted 500 times.

Web users may also be jailed if offending posts are viewed more than 5 000 times.

Hundreds of bloggers have been arrested since the campaign began, rights group Amnesty International has reported.