China eyes its surging, $9.28 trillion fund industry, warning new regulations are coming

China’s Securities Regulatory Commission has vowed to sort through its 60 trillion yuan ($9.28 trillion) fund industry, aiming to eliminate mismanaged and fake private funds.

“China is actively promoting high-quality growth of its capital markets, and healthy development of the 60 trillion yuan fund industry is a crucial part of it,” Yi Huiman, chairman of the country’s securities regulator, told a meeting held earlier this week by the Asset Management Association of China.

Yi stressed that the government views the fund industry as key to the country’s promotion of high-quality development in its capital market, which can greatly serve China’s real economy and wealth management.

Authorities now want to channel more of the nation’s household savings into the capital markets in order to fund innovation and help the post-pandemic economic recovery, as well as to lower the economy’s dependence on bank lending.

To achieve this end, fund managers are advised to put their interests more closely with investors and abstain from hyping their products, the official said.According to the regulator’s data, assets under management of public funds in China surged 160% in the last five years to 23.5 trillion yuan ($3.6 trillion) by the end of July this year, and now rank fourth globally. The country’s private securities fund sector doubled in this period to 5.5 trillion yuan ($852 billion), while the private equity and venture capital industry tripled to 12.6 trillion yuan ($1.9 trillion).

Yi said the fund industry has contributed to China’s major capital market reforms by attracting medium to long-term funds, raising market stability and improving the quality of listed companies. The industry also aided China’s pension system reform as well as innovation and entrepreneurship.

However, according to the regulator, there is a great number of smaller operators in the sector who stall its growth, for instance, private-fund managers who raise money publicly thus misappropriating clients’ funds. Yi warned that new regulations covering the industry will be released in the nearest future.

For now, the official advised that the country’s fund managers put clients’ interests first, noting that “it happens from time to time that funds make money, but investors don’t.” Until the new regulation comes in, he urged fund managers to improve the balance between the scale, structure and development quality of their funds, amend client services and eliminate irregularly managed private fund products.

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