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China's first fund law will not only help develop the fledging fund sector, but also encourage regulators and fund managers to do a better job.
Mo Taishan, a division chief with the fund supervision department of the China Securities Regulatory Commission, the securities industry watchdog, said the body was "stepping up preparation of the relevant regulations to run parallel with the fund law."
The new rules, which are expected to come out this week, will cover six areas - sales of securities investment funds, fund operation, management of fund companies, information disclosure, a code of practice for fund companies' senior executives and criteria for custodian banks, Mo told a fund seminar organized by the China Asset Management Co and the Bank of China in Beijing over the weekend.
"The purpose of the legislation is to set up new standards for the fund business and help its growth," he said. "But the priority is to provide improved investor protection."
The Securities Investment Fund Law of China, approved by the Standing Committee of the National People's Congress (NPC) last October, is expected to take effect on June 1.
It will clarify the standards for fund operation, market entry, information disclosure and more importantly, the rights and liabilities of relevant parties, and punishments in case of breaches.
And the removal of many restrictions will also improve prospects for innovation in the sector.
The law will, together with the commission's new rules, form a comprehensive legal system for the fast-expanding securities investment fund industry and clear up much of the policy ambiguity, experts said.
Mo said that more new fund products, including the Exchange Traded Fund, are expected to enter the market and the commission would organize an international seminar and other events soon in order to promote the new law and rules.
China's securities investment fund industry has developed rapidly over the past few years, with its total asset scale expanding from just 10 billion yuan (US$1.2 billion) at the end of 1999 to nearly 200 billion yuan (US$24.2 billion) at the end of last year and to the current figure of more than 250 billion yuan (US$30.2 billion), official statistics said.
As the stock market resumed its bullish run this year, the mutual fund sector also achieved impressive growth in initial public offerings (IPOs), with 130 billion fund units sold so far this year, almost equaling last year's total for IPOs.
But healthy development is not all about speed.
Fund managers should be clearer about their capabilities and ensure the proper application of the money entrusted by investors, said Wang Lianzhou, a former member of the NPC Finance and Economic Committee, who helped to draft the securities investment fund law.
Investor trust is the lifeblood of fund managers, so they have to try to do a good job in investment and management and hire sufficiently qualified staff.
It also requires good risk management and self-discipline to avoid irregularities like insider trading. Wang said that this makes such a comprehensive law very important.
China's fund management companies has recovered from price manipulation scandals four years ago, which tarnished the industry's image.
"The industry badly needs a law to standardize the practices of all relevant parties," said Dai Yongyi, executive vice-president of the China Asset Management Co.
Yang Liu, deputy general manager of the fund custody department of Bank of China, also said the new fund law would force banks to improve services to fund buyers and usher in new business opportunities.
The Chinese market has also attracted many overseas asset managers over the past few years due to its high savings rate, leading to the entry of about a dozen fund management joint ventures.
And more new mutual fund products have been developed, including bond funds, index funds, monetary market funds and guarantee funds.
(China Daily May 24, 2004)
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