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China Fund Industry Report, 2006-2007 (Chinese Version)
Research In China, Jan 2007, Pages: 162
As of June 30 2006, a total of 266 security investment funds are formally put into operation, with total net asset value of RMB 511.416 billion and total share scale of 426.909 billion units. Of these, the net asset value of 54 closed-end funds amounted to RMB 119.615 billion, accounting for 23.39%; and the share scale reached 81.7 billion units, accounting for 19.14% of the total. The net asset value of 212 open-end funds topped RMB 391.8 billion, accounting for 76.61% of the total and the share scale reached 345.209 billion units, accounting for 80.86% of the total. In the first half of 2006, stock-directed funds increased from 165 units to 189 units, and their total net value also increased from RMB 237.147 billion to RMB 338.996 billion, up by RMB 101.849 billion. The increase was mainly driven by the robust growth of A shares in China.
China Financial Futures Exchange established in Shanghai on Sep 8, 2006. And following it, the forthcoming domestic equity index futures transaction is expected to activate the closed-end funds market of 81.7 billion units, which would decline the discount rate of closed-end funds and promote annual rate of return on arbitrage to be rational level. Also on September 8, 2006, ChinaAMC Xing Ye Fund began application, which regarded as the first case of fund reform in China for the matured closed-end funds convert into open-end fund. This marked the beginning of closed-end funds with total 81.7 billion units convert into open-end funds.
It's estimated that there will be a huge room for the development of China fund industry. Firstly, available financial resource and financial structure have been experiencing a transformation in China. Secondly, compared to overseas fund, it can be seen that as early as the end of 1999, US Mutual Fund had become the largest financial intermediary in US financial market, accounting for 29% of financial assets while the fund only shared around 1.5% of financial assets in China.
In fact,the economy is experiencing a steady and high-speed growth as well as the profit of enterprises, the demands for investment and financing are also strong owing to the long-term low interest rate and low inflation and moreover, the pension system is getting reformed. All the above factors can offer key incremental capitals for mutual funds. Besides, another important assumption lies in corresponding expansion of market depth, including both institutional expansion brought by full circulation reform and large numbers of quality companies listing in stock exchanges. However, in spite of the great opportunities, the market concentration shows an obvious decline in China fund industry and the competition is getting unprecedented rampant among fund companies with homogeneous profit-making modes.
Now since increased competition has reduced profit margin, fund management companies have to take market shares and make a profit by speeding up to lunch new funds. However, this kind of profit-making mode is dangerous when the fund issue runs into plight. As a result, all of these conclude that on one hand, the traditional growth mode of China fund industry is restricted by market environment, and on the other hand, it should get changed.
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