SCHRODERS Asia has launched a new fund to allow investors to tap into the China market while investing in Hong Kong stocks. The China-Hong Kong Enterprise Fund, whose offer closes today, carries an initial charge of five per cent, plus a management fee of 1.25 per cent. There is also a trustee fee of 0.25 per cent. Despite its stated aim of providing mainland exposure, the fund kicks off with a stronger bias towards Hong Kong, reflecting the short-term concerns and uncertainty in China following January's package of monetary and fiscal reforms. Schroders director David Lui, who manages the fund, said: ''Asset allocation is dependent on how we see the economies of Hong Kong and China moving, and the outlook for their stock markets. ''The recent changes in China must be very positive in the long term. The monetary and tax reforms are good news, but in the short term they are going through this overheating period where inflation is still high and economic growth is still very fast. ''It is in a period of transition as it moves towards more of a market economy. So at the moment, we have more invested directly in Hong Kong than China. But if we see signs - especially if the market has discounted the problems - we will increase our investment in China quite substantially.'' The fund will invest in listed companies in Hong Kong and China, using both H and B shares to gain exposure to the mainland. Mr Lui will be watching both H and B shares as the markets fall to identify good value opportunities. The fund will also buy into companies which are related to China but listed in Europe and the US. ''We want to provide a very consistent return to investors - not volatile returns - and look at the long term rather than the short term,'' Mr Lui said. To stabilise the fund's performance, there will also be strong sectoral emphasis, especially in terms of the Hong Kong companies. For now, Mr Lui favours the office and hotel sectors. The tax changes in China could have a more immediate bearing on fund holders than simply enhancing or detracting from investment potential. Under the existing mainland regulations, the tax consequences of foreign investment are still unclear, but Schroders says there could be a cut of 10 or 20 per cent. The company said: ''Withholding taxes may be payable, but the Chinese authorities have not enforced collection. ''If collected, the rate would be 10 per cent of dividends on B shares from companies established in Shenzhen or Shanghai, if the shares were listed on those exchanges - or otherwise 20 per cent. ''Similarly, gains of a capital or trading nature on dealings in Chinese securities may be liable to withholding tax. Also, capital gains may be levied.'' The minimum investment in the fund is $5,000 and there are no redemption fees.