CHINA funds see little return on their investment in mainland state enterprises because earnings are not as promising as expected, says an industrial specialist. However, director of Sun Hung Kai & Co, Peter Fung Yiu-fai, says this does not deter newcomers wanting to cash in on the huge China market as people believe investments in China's booming economy will give them yields more than enough to compensate for the shortfall. Industrial practitioners say there have been nearly 30 China funds launched so far, and these have attracted an estimated investment of US$1 billion to $1.5 billion. China funds include China ''B'' shares, Hongkong stocks with exposure in China, and direct investment in mainland state enterprises, as well as property and infrastructure projects. Mr Fung yesterday said direct investments in China's state enterprises had not been easy. ''With everyone scrambling for a share in the huge China market through the setting up of China funds, they'll soon realise the difficulty of selecting state enterprises that will give them reasonable returns,'' Mr Fung said. ''From the transformation of a planned economy to a market economy, enterprises have to undergo immense changes, from serving the community as their main objectives, to maximising returns,'' he said. With the limited supply of profitable enterprises or potential investment targets, China funds with heavy emphasis on direct investment in state enterprise are likely to suffer, he added. With demand for the companies exceeding supply, Mr Fung said keen competition is expected. Sun Hung Kai & Co manages three China funds: the Pearl River Delta Investment Co, SHK China Industrial Investments and a fund focusing on China ''B'' shares. Mr Fung said the Pearl River Delta Investment was the most successful of the three. Investments have been made in two manufacturing companies as well as two residential projects in Guangzhou, costing about $60 million. Shareholders of the Pearl River Delta Investment Co included SHK International, wholly owned by Sun Hung Kai & Co, Yue Xiu Enterprises, Wardley, Ivory & Sime of Britain, and Touche Remnant of Britain. Mr Fung said the company was proposing to have a fourth China fund, but said the launching details would depend on the market conditions.