SCIO briefing on financial policy package to stabilize the market and expectations

Xinhua Finance:

The questions go to Mr. Wu. You just mentioned the action plan to promote the high-quality development of public funds. Could you update us on the progress that's been made? What impact will this action plan have on the capital market? Thank you.

Wu Qing:

Thank you for your questions. At two press conferences in January and March this year, I talked about progress made in encouraging medium- and long-term funds to invest in the capital market and outlined the basic approach to public fund reform. Since the meeting held by the Political Bureau of the CPC Central Committee on Sept. 26 last year, the CSRC has implemented the decision and arrangement to "steadily promote public fund reform." We've conducted more than 30 special investigations, gathering feedback from all stakeholders, including investors and institutions. These efforts focused on addressing the pain points and bottlenecks commonly reported by investors. The action plan to promote the high-quality development of public funds has been finalized and will be released and implemented today. While I've previously shared the basic approach to public fund reform with you, the complete details are available on our website. This reform initiative launches just as the investment world has been reflecting on Warren Buffett's widely discussed farewell address. Buffett is a widely respected investor who will retire this year. I believe the most valuable lessons we can take from him are value investing, long-term investing, rational investing and his dedication to delivering returns to investors. These basic principles are timeless. This is precisely what our reform aims to promote. This era needs a new generation of investment leaders. We already have a group of exceptional companies and entrepreneurs. Therefore, I'm confident we'll see the rise of outstanding investors and investment institutions to match. Some critical rules are essential for cultivating this potential. The focus of this reform centers on several priorities:

First, we will strengthen the alignment of interests with investors. The focus is on reforming the fund operation model and urging the industry to return to its purpose of "managing wealth on behalf of clients who have entrusted their assets." We will optimize the fee structure for actively managed equity funds. Those with poor performance must charge lower management fees. Through a floating management fee mechanism, we will end the practice where fund companies collect the same fees regardless of whether returns are good or bad. At the same time, we will incorporate metrics that are directly related to investors' interests, such as whether performance exceeds benchmarks and how investors' profits or losses fare, into the assessment systems for both fund companies and fund managers. This will push fund companies to shift from prioritizing "scale" to emphasizing "returns." In addition, we will raise the required proportion of bonuses that fund company executives and fund managers must invest in their own products while moderately extending the lock-up period. This will ensure these key personnel have interests that are more closely aligned with those of investors.

Second, we will emphasize enhancing the stability of fund investment behavior. To address issues such as fund style drift and false advertising of investment products, we will require each fund to set clear performance comparison benchmarks that serve as objective measures of real performance. These benchmarks will help ensure that a fund's investment activities remain consistent with its stated name and positioning, allowing investors to accurately assess what they are investing in. At the same time, to strengthen the foundation for long-term investing, we will establish comprehensive incentive and restraint mechanisms involving regulators, self-regulatory organizations, rating agencies and the fund companies themselves. We will require fund companies to implement long-term performance evaluations, ensuring that performance over periods of more than three years should not be less than 80% of the assessment. This will reduce the tendency for fund managers to chase short-term gains and sell in downturns, and help improve long-term returns for investors.

Third, we will focus on enhancing the ability to serve investors. We will guide fund companies and fund sales institutions to improve how they allocate resources across investment research, product design, risk management and other areas to better serve investors. We will promptly issue regulatory provisions for public fund investment advisors, promote standardized development, and provide investors with appropriate asset allocation portfolios. At the same time, we will accelerate the launch of a direct sales service platform for institutional investors to facilitate the participation of various institutional investors in fund investments.

Fourth, we will focus on the strategic direction of developing and strengthening equity funds. Equity investment is the key area where public funds can create unique value for investors. Since September last year, the scale of equity funds has increased from 7 trillion yuan to 8.3 trillion yuan. Looking ahead, we will strengthen regulatory guidance and optimize the classification evaluation mechanisms for fund companies and fund sales institutions to promote increased issuance and sales of equity funds. We'll actively promote product innovation and continuously enrich index funds and actively managed funds that align with national development goals and are more conducive to creating long-term returns for investors. Building on the previously established five-working-day fast registration mechanism for stock ETFs, we will further significantly improve the registration efficiency for actively managed equity funds and other fund products that meet certain equity investment proportion requirements.

We believe that with the implementation of the reform plan, public funds will place greater emphasis on the best interests of investors, and investors' sense of gain will be further enhanced. Thank you.

Shou Xiaoli:

Let's continue with the questions. The press conference has been underway for nearly 85 minutes. Due to time constraints, we will take one last question.