China decries pursuit of glory, short-term gains in revamp of US$4 trillion fund industry amid steep market losses

Mutual funds must abandon the practice of seeking short-term returns, stop blindly pursuing scale and protect investors’ long-term interests, CSRC says

The guidelines will help stabilise financial markets and increase competition between mutual funds and other financial institutions, Truvalue’s chief economist says

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China’s securities watchdog has issued guidelines for the nation’s US$4 trillion mutual fund industry. Photo: AFP

Published: 7:30am, 28 Apr 2022

China is taking steps to revamp its US$4 trillion mutual fund industry amid stunning losses, decrying the pursuit of short-term results and celebrity status after the local stock market suffered the biggest blow in the region last quarter.

Mutual funds must prioritise investors’ long-term interests, prevent obsession with size and rankings and seek greater participation from the financial sector, the China Securities Regulatory Commission (CSRC) said in a statement on its website late on Tuesday. The regulator also encouraged banks, insurers and brokerages to enhance participation in the sector.

“The guidelines are aimed at tackling the disorderly expansion of capital [and improve competition],” said Wei Fengchun, chief economist at Shenzhen-based Truvalue Asset Management.

China’s mutual fund industry took some heavy losses in the first quarter due to market volatility. Photo: Shutterstock

He noted that the measures come against the background of inappropriate management of some mutual funds, which has led to the pursuit of short-term performance and preference for large scales. “[This] could cause market instability and possibly spread the risks [to the wider financial industry],” he said.

The message came as the industry has mushroomed into the world’s fourth largest, with 9,491 funds overseeing 26.34 trillion yuan (US$4 trillion) of assets at the end of February, according to data from the Asset Management Association of China.

At the same time there have been complaints from investors about huge equity losses. The industry recorded 1.34 trillion yuan of losses in the first quarter, as the Shanghai Composite Index fell 10.7 per cent in the first quarter. The drop has since widened to about 19 per cent through April 27, making it the worst performer among major benchmarks in Asia-Pacific.