China Mutual Funds Face New Regulations and Inspection Challenges
Impact of Government Regulations on China's Mutual Funds
China's $4.4tn mutual fund industry faces unprecedented challenges due to President Xi Jinping's latest financial crackdown. New laws mandate a reduction in fees for both active and passive funds, significantly altering the cost structure for mutual fund houses. These regulations, which took effect last month, also prohibit fund managers from engaging third-party consultancy services.
Tougher Inspections and Audits Begin
The National Audit Office has initiated rigorous on-site audits, inspecting the accounting practices of over 10 leading mutual funds during a two-month review period. This evolving landscape has led to increased oversight, requiring fund managers to provide daily trade reports when net sales occur.
- In 2023, the mutual fund industry reported Rmb492.8bn ($69bn) loss for investors.
- 2022 saw an even larger loss of Rmb1.47tn.
Exit of Experienced Fund Managers
In recent months, China’s mutual fund sector has experienced a significant turnover with at least 204 fund managers exiting their roles. This marks a troubling increase compared to previous years, resulting in a surge of less experienced individuals leading funds.
Analysts highlight that the current regulations hinder the establishment of 'star fund managers,' contributing to increased pressure on active equity fund managers.
Fee Adjustments in Response to Regulations
Historically, Chinese mutual funds have charged fees higher than their international counterparts, averaging 1.43 percent. However, many firms now lower fees to remain competitive and comply with new mandates.
- E Fund has cut management fees from 1.5% to 1.2%.
- Rival firms like China Asset Management are making similar reductions.
Overall, the mutual fund industry has shifted dramatically in response to regulatory pressures, with implications for both managers and investors.
This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.