Since Everbright Bank first introduced in Beijing its RMB fund management service in July 2004, a total of six or seven medium and small-sized banks have offered their own versions of RMB fund management products across the country. These new financial products were met with ready sales with estimated total sales revenue of over 30 billion yuan to date. "They sell like hell!" as bank staffs put it. RMB fund management products are catching more and more eyes not only because of their hot sales, but also because of the suspicion from some market insiders and the several orders of restriction by state regulatory bodies. For instance, some alleged that the banks are suspected to attract deposit with higher interest rates; others believed that the hiking earning rate might lead to vicious competition among the banks. The regulatory bodies, for their parts, ordered that the banks remind their clients of investment risks, and forbad the banks from promising "guaranteed principal and interest."

However, amid ongoing disputes, the ever-rising market demand for fund management is still propelling the sales of these products offered by banks. At the turn of 2005, Industrial Bank led in a new wave of "attacks" by introducing its "Wanlibao" series of RMB fund management products, thus heating up again the competition on RMB fund management market. The expected earning rate for 1-year product was as high as 3.15 percent without any mandatory deposit at the bank. Several days later, Everbright unveiled its "Sunshine Fund Management Plan E," the first of its kind focusing on children's education. Its "Jinzhuangyuan (pinyin) Development Solution has a maximum accumulated investment period of 4.5 years with an accumulated earning rate of 18.58 percent upon maturity. The clients also have the right to premature termination. This was closely followed by Minsheng Banking Co. Ltd with its Baode Fund Management Phase II, not only higher than the Phase I in terms of comprehensive earning rate, but also with more alternatives of 3-month product and 3-year product. When small banks barely finish their "performance," the "armchair four" are warming up for the show. It is learned that the four big brothers could hardly stand by any longer looking at small banks snatching people's deposit from their pockets, and planned to get a hand into the fund management market once they obtain permissions from the regulatory authority. It does not take an expert to imagine how fierce the competition could be on the RMB fund management market. In face of this situation, people might not help asking the same question: Any fund management product has a maximum earning rate, and in case the banks under competitive pressure blindly "bid up," can they keep any profit for themselves at the end of the day? This scenario, somehow remind us of the situation several years earlier in which a number of credit card issuing banks tried to lure more clients by axing their service fee rates. In the end, these banks learned their lesion in a hard way - few of them amounted to any profit. Banks, however, simply shrugged off. Officials with Minsheng told reporters that vicious competition would by no means take place even if the "armchair four" enter into fund management market, as each bank will carefully balance its cost and earnings, and design marketable products based on its own advantages. A blind price war will bring nothing but loss to the banks. Admittedly, the money raised from the sales of the existing fund management products is mainly spent on inter-bank bond market where the annual earning rate ranges from 3 percent to 3.5 percent. Given the labor cost at the banks, the earning rates that they are offering to their clients are nearing the upper limit of fund management products, and there is no much room left for the banks to play pricing tricks. On the other hand, there are two leading short-term motives behind the banks' passion for RMB fund management: 1) to absorb more deposit by matching mandatory fixed deposit with fund management products; 2) to lure more high-end clients through market segmentation. From the perspective of earnings alone, the banks have to shoulder higher cost in their RMB fund management business if compared with that of simple deposit, and they also have to transfer much of their own earnings to their clients. In this sense, the banks actually were obliged to do so. On the other hand, if the banks are able to lure or retain high-end clients, then their earnings from larger market shares on the fund management market and other intermediate business may not be sufficiently described by one percentage point or two. Based on this very reason, some analysts pointed out that the "armchair four" are advised to offer more choices in financial products should they enter into RMB fund management market. Instead of single-minded price war, the key issue for big players is to prevent medium and small banks from snatching away their deposit, particularly those held by high-end clients.

As far as the writer is concerned, the strategy of China Merchants Bank for this ongoing marketing campaign of RMB fund management products is worthy of much praise. It is learned that the bank's fund management products are only targeting at VIP clients in many big cities, and the purpose is apparently to retain its prominent clients. Meanwhile, the bank also introduced "Fortune Account," a new platform for fund management, to attract more medium and small clients with the "gold content" of these innovative financial services. They arrived at the balance point between cost and earnings. Minsheng Bank, for its part did not excessively stress on higher earnings rate when introducing its Phase II fund management products, but offered greater flexibility in terms of product mix, period, liquidity and ways of interest payment in an effort to satisfy people's widely ranging options for fund management products. The bank has allegedly done a very detailed analysis on the sales of its Phase I products to examine factors behind changes in client base, product profitability, and effectiveness of sales channels, and the Phase II products were not introduced until they were further improved based on the understandings from previous analysis. It is now safe to say that the consideration on cost and earnings has taught the banks how to calculate in a careful way, and the price war will be no longer the only means of competition in this sector. When asked on the trend for future development in fund management products, Hong Qi, Vice President of Minsheng Banking Co., Ltd. told reporters that the existing RMB fund management products on the market are fairly generalized, and that they will become more and more personalized as more competitors emerge on the market, and that the market itself will be further segmented. Hong believes that the banks, after probing and practicing for some time on the market, will be able to properly position themselves, and accordingly develop products that target at specific segment of the market. As a matter of fact, such trend is already perceivable. The introduction of fund management products focusing on children's education by Everbright is a case in point. These products target at those who want their children to live a successful life and plan to accumulate educational expenses for them. The designing of these products is more considerate and "human-centered" in that their period perfectly matches the school semesters, and their maturity falls exactly before the start of new semesters; meanwhile the bank also offers choices with varying periods for primary education, secondary education and even overseas education. It is also learned that the "theme of children's education" is only a start, and Everbright plans to introduce a series of fund management products including "the theme of pension" products. Given this fact, we can tell that the bank has been determined to pursue fund management business until the very end. What we can also expect is quicker shift of commercial banks to market-oriented operations. Faced with competition in RMB fund management products as well as in other financial products, the banks will eventually jump out of the pitfall of low-level price war, and step into fast tracks for rational development.