China Passes New Fund Regulation Law

by Mary Swire, Tax-News.com, Hong Kong

04 November 2003

China took an important step towards developing its rapidly growing funds industry when a long-delayed piece of legislation that will regulate the market was approved by the National People’s Congress last week.

The new law, known as the Securities Investment Fund Law will go into effect in June next year, and establishes a regulatory framework for an industry that was more or less ungoverned in a legal sense, and allows regulators to impose criminal sanctions on rule breakers.

It also establishes a benchmark for a firm to be enabled to act as a sponsor to a securities fund meaning that only firms with a minimum of 300 million yuan ($36 million) and a clean operating history stretching back three consecutive years will be able to act in this capacity.

The final version of the legislation also require fund managers to have at least three years experience at fund management level, though this was reduced from five years as set out in the second version of the bill.

The Chinese fund industry has boomed in the last few years and there are now around 87 funds operating in the country compared to just five in 1998, and assets under management now exceed 160 billion yuan ($19.33 billion), though this is still a tiny fraction of the $600 billion worldwide fund industry.

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