China’s Capital Markets

China’s Capital Markets

Challenges from WTO Membership

Advances in Chinese Economic Studies series

Edited by Kam C. Chan, Hung-Gay Fung and Qingfeng ‘Wilson’ Liu

China’s economy has been growing rapidly since the late 1970s and is expected to maintain this momentum in the foreseeable future. Coupled with the biggest population in the world, there is tremendous growth potential for China’s capital markets and financial services industry, both vital to the continued development of the economy. The contributors present research on all facets of China’s markets including: stock and bond markets; futures and over-the-counter markets; regulatory issues; and the development and roles of financial institutions such as brokerage firms, banks and insurance companies. Also addressed are the recent performance of equity markets, the emergence of small and medium enterprises, and the state banks’ bids to be listed in overseas stock exchanges. Taken together, the book sheds a welcome light on China’s overall economic growth.

Chapter 10: A Primer on the Securities Investment Fund Industry in China

Xiaoqing Xu

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation


Xiaoqing Xu INTRODUCTION China’s emerging securities investment fund (SIF) sector represents one of the fastest growing fund markets in the world. In 1999, China only had ten fund management companies (FMCs) and an industry asset base of RMB51 billion (or US$6 billion), accounting for 6 percent of China’s tradable stock market value (see Table 10.1). By the end of 2005, 52 FMCs had set up 218 funds with an asset base of RMB471 billion (or US$59 billion), accounting for 44 percent of the country’s tradable stock market value. In addition, China’s fund industry has attracted capital and talents from many of the world’s leading fund managers. By the end of 2005, 20 joint venture (JV) FMCs had been set up by leading international asset management firms and Chinese domestic financial institutions. Securities investment fund, an investment intermediary that gathers funds from investors and collectively invests in a portfolio of publiclytraded stocks and bonds, is a natural byproduct of the security market development. Through the collective investments of the SIF, each investor shares in the return from the fund’s portfolio while benefiting from professional investment management, risk diversification and enhanced liquidity. There are two major types of SIFs: closed-end funds (listed and traded on the stock exchange with a fixed number of shares) and open-end funds (unlisted shares open to investors for purchase or redemption at Net Asset Value). Closed-end funds raise the capital for security investments through an IPO, while open-end funds (also called ‘mutual funds’)...

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