THE China fund market will this year see another rush of mainland financial institutions forming country funds with overseas investors, according to Mr Chang Qing, head of the CITIC Research Institute. Speaking at an investment fund seminar in Shenzhen yesterday, Mr Chang said the Bank of China was in the process of launching its second China fund outside the country this year. Set up in October last year, the bank's maiden country fund met an encouraging response, which pushed its size from US$100 million to $150 million. ''China Merchant Holding, Guangzhou and Jilin provincial governments are also understood to be actively studying the possibilities of forming China funds in the international markets,'' Mr Chang said. He added that a similar venture was being discussed by Merrill Lynch and Shanghai International Securities. As most of these funds would be placed with overseas institutional investors, Mr Chang believed their establishment would be beneficial to the long-term development of China's financial market. They would provide overseas capital to help sustain the country's long-term economic growth. Mr Chang also noted that greater involvement from Chinese institutions would facilitate the formation of China funds focused on investing in enterprises with potential for listing on the stock market. The move would in turn aid the development of the stock markets in China. Mr Chang said the Chinese authorities should not interfere in the fund market in an excessive manner as investors and founders should be free to make their own choice. ''On the back of a booming mainland economy, it is relatively easy for a Chinese company to raise capital overseas via investment funds. But the real test falls on whether the Chinese companies possess sufficient expertise in fund management,'' he said. There are several conditions affecting China funds' profitability and liquidity in China. They include the restriction of the A-share market to foreign funds, the limited supply of B shares, the wide gap between mainland and foreign financial management standards and the low efficiency of state-owned enterprises. Given these limitations, Mr Chang believed mainland institutions should not rush to form country funds but instead put more emphasis on training local fund managers and improving the management system. He said another immediate problem with the fund market's development lay in deciding whether investment funds should be treated as a business or an institution. If the latter, the government should work out the structural relationship between the funds and other government units in order to have an effective regulatory system.