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Domestic institutional investors in Mainland China comprise mainly securities
investment funds and privately-offered funds,
securities companies and insurance companies.
The trust and investment companies and the National
Social Security Fund also have a role. Because
of the limitations of the Mainland stock market,
there is increasing demand from these institutions
for overseas investment.
In December 2002, Mainland China introduced the Qualified
Foreign Institutional Investor (QFII) scheme which allows
for the first time the entry of foreign investors into the
domestic A-share market. The first QFII investment took place
in July 2003. With the QFII scheme in operation, there is
an increasing discussion of a corresponding mechanism for
overseas investment by domestic investors ¾ a Qualified
Domestic Institutional Investor (QDII) scheme. It is believed
that this could help utilise China’s large foreign exchange
reserves and domestic foreign exchange savings, thereby helping
to maintain a better balance on the capital account.
Overseas investment by Mainland domestic investors, whether
by way of a QDII scheme or not, will impact the Hong Kong
securities market. It is against this background that the
present examination of institutional investors in Mainland
China is conducted. This article presents the framework of
the institutional investor base in Mainland China, the relative
degree of participation of the various investor types in the
Mainland securities market, and a brief description of each
major type of Mainland institutional investor.
MAINLAND CHINA SECURITIES MARKET INVESTOR FRAMEWORK
Figure 1 presents the investor framework in Mainland China
securities market.
The Mainland institutional investor base is composed of the
ultimate institutional investors and various types of institutional
investment intermediaries. Investment intermediaries include
fund management companies and their securities investment
funds (SIF), securities companies, insurance companies, trust
and investment companies, privately-offered funds operated
by various financial and non-financial institutions, financial
leasing companies and enterprise finance companies. Investment
monies from individuals and institutions are channeled individually
through these intermediaries into the securities market or
collectively via social security funds and enterprise pension
funds and possibly other social funds.
Apart from the collective channels provided by the intermediaries,
the major collective institutional fund source is the National
Social Security Fund (NSSF), followed by enterprise pension
funds. These, together with the local social security funds
in different provinces and municipal cities, are the core
part of the social security system. The NSSF, the investment
activities of which are governed by special rules, is allowed
to invest in the securities market. The enterprise pension
funds operate in a more or less commercial way and no regulations
have been imposed to restrict their investment in the securities
market. However, local social security funds are less organised
and are allowed to invest only in bank deposits and government
bonds.
Figure 1. The investor framework in Mainland China
securities market
Individuals, corporations (including state-owned and privately
owned), government units and social institutions contribute
to the social security funds and enterprise pension funds
which in turn invest in stocks and/or government bonds through
the investment intermediaries.
Institutions participating directly or indirectly in the
Mainland securities market come from the three financial market
sectors ¾ banking, insurance and securities. Under
the current policy of “separate business, separate regulation”,
these institutions are regulated by different regulators.
Trust and investment companies, finance companies, financial
leasing companies and commercial banks (which act as custodians
for securities investment) are regulated by the China Banking
Regulatory Commission (CBRC); insurance companies are regulated
by the China Insurance Regulatory Commission (CIRC); and the
securities companies and fund management companies are regulated
by the China Securities Regulatory Commission (CSRC). This
policy and regulatory framework impedes the efficiency of
the financial market in resource reallocation since efficient
fund flows across market segments are restricted. Therefore,
there are calls for policy relaxation to allow for financial
conglomerates participating in all three market segments.
In practice, such conglomerates do exist in the form of separate
entities held by a single holding company. As a compromise
in the transition stage, there has been a proposal for “consolidated
business, separate regulation”. The Mainland authorities
accept that financial conglomerates are the development direction.
MARKET SHARE BY INVESTOR TYPE
According to latest unofficial estimates[1], the
aggregate investment value of the various institutional funds
constitute roughly one-third of the market value of tradable
stocks and government bonds on the Shanghai and Shenzhen stock
exchanges. Figure 2 shows the estimated market share by type
of institutional funds.
Figure 2. Estimated investment in value terms by investor
type in stocks and government bonds listed in Shanghai and
Shenzhen
SIFs managed by authorised fund management companies are
regarded as the most regularised institutional investment
in the Mainland securities market. They have the biggest market
share apart from the more or less unregulated privately-offered
funds. The SIF market is the focus of Mainland authorities
for the development of the institutional investor base.
The investment management business of securities companies
is regarded as the next most regularised institutional investment
activity, i.e. after the SIFs. Taking also into account their
proprietary trading, securities companies constitute another
major type of institutional investor equal in importance to
the SIFs.
Insurance companies are still not allowed to enter the securities
market directly but only indirectly through the SIFs. About
28 per cent of SIFs in value terms is held by insurance companies,
that is, about 3 per cent of the total market is held indirectly
by insurance companies. Although direct participation is still
restricted, because of the fast growth of the Mainland insurance
industry, insurance companies offer a large future potential
source of institutional funds for the Mainland securities
market. It is understood that the Mainland authorities are
considering allowing direct participation of insurance funds
in the market.
Trust and investment companies offer a wide variety of trust
funds; funds investing in securities constitute only a small
proportion of these. The NSSF and QFII entered the market
only in 2003. The degree of participation is still small.
There are other types of investment intermediary ¾
financial leasing companies and enterprise finance companies
¾ but these have limited participation in the securities
market. It is understood that instead they are relatively
more active in the futures market.
The following sections describe the major Mainland institutional
investor types in turn.
Securities investment funds, or SIFs
The Mainland SIF market has a development history of some
12 years. The first SIF was issued in 1991 before the promulgation
of any formal regulations. Since the first set of rules on
SIFs issued in November 1997[2], the market has
been developing in a more regulated manner. Open-end funds
were introduced in 2001 upon the issuance of the related rules
in October 2000.[3] Before that, only closed-end
funds were issued.
As at October 2003, there were 54 closed-end funds and 50
open-end funds. All the closed-end funds are listed on the
Shanghai or Shenzhen stock exchanges while the open-end funds
are not listed. In terms of asset value, open-end funds have
a bigger share (53 per cent, Figure 3). Of the total assets
of the publicly offered SIFs, about 28 per cent was held by
insurance companies.
Figure 3. Asset value of SIFs by type (September 2003)
On 28 October 2003, Mainland China’s Securities Investment
Fund Law (the SIF Law) was promulgated; this will be effective
on 1 June 2004. The SIF Law lays down the regulatory principles
and operational framework for SIFs. It covers SIFs that are
offered domestically and publicly in units, managed by a fund
manager, with custody service provided by a fund custodian,
in the form of an asset portfolio, engaging in securities
investment activities for the interests of the fund unit holders.
The SIF Law mainly covers the closed-end funds and open-end
funds while other forms of SIF are subject to separate regulations
issued by the State Council.
The SIF Law stipulates that the investment scope of SIF assets
includes listed stocks and debt securities and other securities
stipulated by the securities regulator (i.e. the CSRC); and
that the asset allocation of SIF portfolios should follow
the requirements of the SIF Law and of the securities regulator.
As understood, pre-existing regulations on SIFs that govern
the detailed operation of SIFs still apply until they are
superceded by implementation rules and measures pursuant to
the SIF Law. According to the prevailing regulations, at least
80 per cent of a SIF’s total assets must be invested
in stocks and bonds, and at least 20 per cent in government
bonds.
Prior to 2002, all SIFs were stock funds (although they complied
with the requirement to invest a minimum of 20 per cent of
their assets in government bonds). In the recent two years,
more variety of SIFs were introduced, e.g. bond funds, index
funds, guaranteed funds and balanced funds. The CSRC recently
disclosed that new product development is one major development
direction for the SIFs.[4]
Following Mainland China’s accession to the World Trade
Organisation (WTO) in December 2001, foreign participation
in the fund management industry is allowed.[5]
Since then, at least eight Sino-foreign joint venture fund
management companies have been established, with 14 new funds
issued, including new fund types like bond funds, growth funds
and balanced funds. In addition to promoting product development,
foreign participation also brings in overseas expertise in
risk management and internal control.
The development of the SIF market nonetheless faces with
a number of barriers and policy obstacles, as described below.
(1) The uncertain future of closed-end funds - As
market focus has shifted to open-end funds since 2001, the
future of closed-end funds has become uncertain. No more new
closed-end funds were issued in 2003 and the turnover shrank
significantly.[6] Partly because much of the ownership
of the closed-end funds is concentrated in the insurance companies,
liquidity is relatively low so that most of these funds are
traded at a large discount to their net asset value. In developing
the SIF market, the possibility of converting closed-end funds
to open-end funds was raised. However, this aroused controversy
since large-scale redemption is expected upon any such conversion
due to the deep price discount. That would induce market turbulence
which the authorities would not like to see.
(2) The resolution for privately-offered funds - This
is the most problematic segment of the Mainland fund market
(see the next section). The sheer size of this unregulated
market makes it difficult for the Mainland authorities to
deal with. The newly released SIF Law has not addressed the
issue but has just provided a provision for separate regulations
to be formulated. This large unregulated market segment poses
a potentially high risk to the market.
(3) The lack of investment tools for portfolio management
- The Mainland securities market lacks risk management tools
such as short selling and derivatives for hedging and other
portfolio management techniques. Unlike counterparts in overseas
mature markets where portfolio diversification can reduce
the impact of the market’s systemic risk, Mainland SIFs
are exposed universally to the Mainland stock market’s
high systemic risk (market movements are often driven by policy
changes). Further, investment is confined to the domestic
market where there are limited quality listed stocks. As a
result, market people have been calling for SIFs to be allowed
to invest in overseas markets.
(4) The investment culture of individuals - Mainland
individual investors have only superficial knowledge about
the concept of professional fund management, though the situation
has been improving. Most individual investors still prefer
to self-manage their investment. Even when they trade listed
funds on the exchanges, their trading strategies are very
much like speculating in listed stocks. This would be a barrier
for the fund industry to expand widely and deeply into the
retail investor population. For this reason, asset management
for individual investors is one development strategy now being
pursued by the fund management companies and is being considered
by the Mainland authorities. It is hoped that through promoting
this service, the investment culture of individuals could
be changed, thereby opening up a major new business stream
for the fund industry.
(5) Corporate governance of fund management companies
- In Mainland China, fund unit holders have little participation
in the management of the SIFs. The major shareholders of fund
management companies in Mainland China are securities companies
and trust and investment companies. In managing SIFs, there
may be conflicts of interest such that the interest of the
majority shareholder of the SIF manager overrides that of
fund unit holders. Accordingly, the SIF Law attempts to provide
better protection of the rights of fund unit holders. Under
the SIF Law, SIF unit holders holding in aggregate 10 per
cent or more of the SIF units may request a SIF unit holders’
meeting, which may be held upon attendance by unit holders
holding more than 50 per cent of the units. However, the effectiveness
of this in resolving the problem of insider control remains
to be seen.
Privately-offered funds, or PVFs
As their name suggests, PVFs are funds offered privately
to investors, whether institutional or individuals, without
any public disclosure of information on the fund itself or
the fund manager. Much of these PVFs’ investment has
been in the domestic stock market. In fact, securities companies
were the first to offer some kind of PVF as an investment
service to their clients. PVFs were introduced in the early
1990s. In the absence of relevant rules and regulations, they
expanded on the back of the flourishing stock market in the
late 1990s. Even now, the current rules and regulations on
securities investment funds govern only the publicly-offered
SIF.
Institutions that offer PVFs include investment advisors
and consultants, finance consultants, investment management
companies, financial management companies and the so-called
“workshops” which are formed by individuals or institutions.
There are no official or unofficial statistics on the size
of the PVFs. One estimate of the total value of the PVFs from
a study done in 2002[7] was about RMB800-900 billion.
After a two-year bearish market, many PVFs with unregularised
operation have been closed down. One estimate is that the
size has shrunk to about RMB200 billion.
It is believed that because of their partially “underground”
nature, many PVF have already been investing in overseas markets
through underground channels. If regulations are introduced
to supervise PVFs, such informal overseas participation might
be restricted.
Securities companies
Securities companies participate in the securities market
as institutional investors in two ways: (1) proprietary trading
and (2) investment management for clients.
Securities companies in Mainland China are classified into
two types: consolidated type and brokerage type. As in December
2003, there are 136 authorised securities companies in Mainland
China, of which 25 are consolidated type.[8] Only
the consolidated-type securities companies are allowed to
conduct proprietary trading in securities and investment management
for clients. While proprietary investment of securities companies
remains small in proportion, the investment management business
of securities companies is of a bigger size and has large
growth potential.
The investment management business of securities companies
was introduced in late 1996. It started in an exploratory
manner in the light of tightened regulation over the proprietary
trading of securities companies. As in the case of PVFs, the
business operated initially in the absence of relevant rules
and regulations. Against this background, the investment management
business of securities companies expanded rapidly from the
second half of 1999 when the Mainland stock market entered
a two-year-long bullish period.
Investment returns in the bullish stock market were much
more attractive to business corporations than income from
normal corporate business and low-interest-bearing bank deposits
and bond holdings. Some incomplete statistics reveal that
in 2000, 50 to 100 listed companies concluded investment management
agreements with securities companies; in the first half of
2001, at least 26 listed companies signed about 50 investment
management agreements, involving an asset value of RMB4.3
billion.[9]
In the light of their high income potential, securities companies
began to offer guarantees on the principal and a guaranteed
return and many asked for a share of the investment return.
The over-expansion of the business exposed securities companies
to high operating risk. The market downturn of the past two
years caused difficulties for many securities companies as
many of them could not honour their return guarantees. It
is understood that many are still operating at a loss. In
November 2001, the CSRC released a notification to govern
the sector.[10] Securities companies were given
two years to rectify their existing investment management
business. Current estimates are that the securities companies’
investment management business has a size of about RMB80-100
billion. The estimate includes “hidden” accounts
maintained by securities companies which have not been reported
to the regulator as they have not been properly rectified
under the prevailing rules.
Despite the loss-making experience in recent years, securities
companies are still actively developing their investment management
business as a major growth area. Recent initiatives included
collective investment plans offered to retail investors, some
in cooperation with commercial banks to take advantage of
the latter’s wide distribution network. However, these
collective investment plans were subsequently banned by the
CSRC in April 2003. No new plans can now be offered before
the relevant rules are released. However, plans which are
already in operation may continue. Currently, the authorised
investment management business of securities companies is
confined to non-collective investment management on individual
account basis. After consultation with the industry, a comprehensive
set of rules on the investment management business of securities
companies were recently released on 18 December 2003, to be
effective on 1 February 2004. Under the new rules, “collective
asset management plans” will be allowed.
In addition to collective investment plans ¾ which
securities companies see as having high business potential
¾ investment management on an individual account basis
is another new development direction. Up to the present, the
clients for investment management have mostly been large state-owned
enterprises. Their investments are usually not long-term and
investment requirements in general do not comply with the
regulations, e.g. requesting a guaranteed return. As a strategic
move, securities companies started to shift their target clients
to enterprise pension funds. The enterprise pension market
is currently dominated by insurance companies. Fund management
companies are also lobbying for participation in asset management
business for individual clients. (Currently, the only authorised
asset management business of fund management companies is
for the NSSF.) Increasing competition in this market segment
is expected.
Insurance companies
Starting from late 1999, insurance companies have been allowed
to invest in the Mainland stock market indirectly through
SIF. Prior to that, they were only allowed to invest in government
bonds and bank deposits.
Because of the fast development of the Mainland economy,
there is an increasing demand for insurance by various economic
sectors. Accumulating personal wealth also spurs individuals
to place spare money into insurance schemes for insurance
or investment purposes. As a result, the Mainland insurance
industry has grown rapidly (see Figure 4). By the end of September
2003, the total asset value of the insurance companies was
RMB833 billion, equivalent to 7.9 per cent of Mainland China’s
2002 gross domestic product.
Figure 4. Total asset value of insurance companies
and annual growth rate Source: China Insurance Regulatory
Commission website
Note: For 2003, the annual growth rate is an annualised figure
based on the first nine months’ growth rate in 2003.
According to the current regulations[11], the
investment of insurance funds is confined to the domestic
market and is limited to the following:
- Bank deposits;
- Government bonds;
- Financial bonds;
- Corporate bonds with a rating of above AA grade from a
recognised Mainland China rating agency;
- Repurchases of government bonds and financial bonds in
the interbank market upon authorisation by the central bank,
the People’s Bank of China (PBOC) as a member of the
interbank market;
- SIFs;Other means of fund utilisation as authorised by
the State Council.
In addition, investment in specific instruments by insurance
companies is also subject to specific upper limits imposed
by the CIRC. Investment in a single SIF should not exceed
3 per cent of the insurance company’s total asset value
on a cost basis, and aggregate investment in SIFs should not
exceed 15 per cent.
As at the end of September 2003, insurance companies had
89 per cent of their total assets placed in investments. Of
this, 52 per cent (RMB383 billion) was bank deposits and 48
per cent (RMB355 billion) was invested in bonds and other
permitted investments. This investment composition appears
to be conservative in comparison with the practice in Europe
and North America where bonds and stocks account for about
two-thirds of the total investment of insurance companies.[12]
However, it should be borne in mind that the investment in
SIFs by Mainland insurance companies is subject to an upper
limit of 15 per cent. The investment in SIFs by insurance
companies was RMB46 billion as at the end of September 2003,
accounting for 13 per cent of the latter’s overall investment
portfolio (excluding bank deposits). This has grown from 2
per cent in 1999. (Figure 5)
Nevertheless, the room for industry growth is very large
as the penetration rate[13] is still very low ?
3 per cent in 2002, compared with 9 per cent in the US and
6 per cent in Hong Kong in 2001, and the insurance premium
per capita[14] is also very low ? RMB238 in 2002,
compared with US$3,266 in the US and US$1,545 in Hong Kong
in 2001[15]. With the rapid expansion of the industry,
the growth in insurance investment in the stock market is
expected to be rapid even with the fixed percentage investment
limit.
As a result of rapid asset expansion and for the sake of
healthy industry development, there is an increasing demand
for expanded investment channels for insurance assets. Currently,
returns on bank deposits and government bond holdings are
low due to low interest rates. The returns on SIF investment
are not very promising either due to the bearish stock market
in the recent years. Investment in SIFs is also subject to
the risk of poor corporate governance on the part of fund
management companies. It should also be borne in mind that
insurance companies themselves often provide a guaranteed
return on their policies and these guaranteed returns are
much higher than the prevailing market returns on their investments.
As a result, there is a serious imbalance between policy liabilities
and (low) investment returns; many insurance companies have
been operating at a loss. There have been calls to allow insurance
companies to invest directly in the stock market and manage
their own investment portfolio directly instead of through
SIFs; and calls for opening outward investment channels to
overseas stock markets in order to diversify risk and increase
return.
Trust and investment companies, or TICs
TICs are a type of financial institution now under the jurisdiction
of the CBRC (formerly under the PBOC). Before the turn of
the century, the TIC sector went through a chaotic period
because of the lack of proper rules and regulations. There
was over-expansion in the number of companies and a proliferation
of investment into various kinds of assets, including the
property and equity markets. After the Asian financial crisis
in the late 1990s, a number of TICs began defaulting on loans
and some became insolvent.
In 1999, the TIC sector entered a rectification process under
the direction of the Central Government. Mainland China’s
Trust Law was introduced in 2001 to provide basic regulation
for the industry. The PBOC subsequently issued administrative
measures[16] in 2001 and 2002 to govern the establishment
and operation and investment of TICs. The number of authorised
TICs was reduced to 60. According to the regulations, TICs
may manage capital trusts on an individual contract basis
or on a collective basis with multiple contracts. For the
collective management of contracts, the number of contracts
involved should not be more than 200 and each contract should
not be less than RMB50,000.
Since the rules allowing collective capital trusts became
effective, TICs began to actively introduce this kind of product.
During the first three quarters of 2003, 139 investment trust
plans were issued involving RMB10.1 billion of funds. For
the 51 such products issued in the third quarter of 2003,
28 per cent were invested in the securities market. (Figure
6)
Figure 6. Allocation of funds by sector for collective
capital trust products issued in third quarter of 2003 (51
products, total funds = RMB 3.6 billion)
The investment scope of the TICs is very extensive. In accordance
with the regulations, trust business may be in tangible and
intangible property and rights, fixed or liquid assets or
other assets. Taking into account collective capital trusts
and other trust types, the proportion of total TIC assets
investing in the securities market would be relatively low,
albeit no statistics are available. Nevertheless, the investment
activities of the TICs are subject to fewer restrictions than
the investment management business of the securities companies
and SIFs. TICs are therefore freer to introduce more variety
of collective capital trust products to cater for different
customer needs. The growth potential in this area should not
be under-estimated.
NATIONAL SOCIAL SECURITY FUND, or NSSF
The NSSF was established in 2000 as a complementary vehicle
to support the social security system in Mainland China. The
sources of funds for the NSSF are mainly fiscal subsidies
from the Central Government and proceeds from the reduction
of state-owned shareholdings at initial public offers (IPOs)
of enterprises seeking an overseas listing and their subsequent
share issuance.[17]
The social security system in Mainland China is mainly composed
of a number of social insurance funds ¾ pension funds,
medical insurance funds, unemployment insurance funds, occupational
injury insurance funds, child birth insurance funds and rural
pension funds. These funds are operated at the local (provincial)
government level. The current status is the result of a radical
reform process that has been going on since the 1990s. The
post-reform model is basically established by now. Under the
new model, enterprises are relieved of the responsibility
of directly operating and managing the social insurance funds;
these functions are now centrally administered by the Ministry
of Labour and Social Security (MOLSS) and its agency institutions.
The policy approach emphasises a three-party contribution
model ¾ the State, the enterprises and the individuals.
However, in many less-developed provinces, cities or xians
(counties), the set-up of the social insurance funds is only
very basic. In the meantime, the aging population and rising
unemployment as a result of state-owned enterprise reform
have increased the burden of pension, medical and unemployment
insurance. In the light of this, there is an urgent need for
Central Government support. The NSSF is therefore established
to cover unfulfilled insurance obligations borne by the local
governments.
The administration and investment of the NSSF are independent
of the local social security funds. The latter are administered
by the local governments and may invest only in bank deposits
and government bonds. Little or no participation in the securities
market is expected from them.
The operation of the NSSF is overseen by the NSSF Council
established under the State Council. According to relevant
rules[18], the NSSF may invest in bank deposits,
government bonds and other financial instruments with high
liquidity, including listed and tradable SIFs, stocks, corporate
bonds and financial bonds with investment rating. Except for
bank deposits and government bonds subscribed in the primary
market, investments have to be entrusted to appointed NSSF
investment managers and custodians. Currently, six fund management
companies are appointed to be investment managers for the
NSSF, managing some 14 NSSF portfolios (eight in stocks and
six in government bonds). The investment activities of the
NSSF are subject to tight restrictions, including the following
(on cost basis):
- At least 50 per cent of assets in bank deposits and government
bonds with bank deposits not less than 10 per cent;
- Not more than 10 per cent in corporate bonds and financial
bonds;
- Not more than 40 per cent in SIFs and stocks.
As at the end of 2002, the value of the NSSF was RMB124 billion,
an increase of 54 per cent from 2001. It had grown to RMB133
billion by November 2003.[19] Notwithstanding the
(generous) upper investment limit of 40 per cent in SIFs and
stocks, less than 5 per cent of NSSF assets are actually invested
in the stock market.[20] The total size of the
NSSF is expected to increase relatively rapidly because (1)
the Central Government aims to raise the proportion of fiscal
expenditure on social security expenses to 15 per cent[21];
and (2) the expected large overseas IPOs of a number of state-owned
enterprises in the coming years will make a substantial contribution
to the NSSF. Therefore, the potential of the NSSF to become
a major institutional investor in the securities market is
high. Moreover, it is reported that the Mainland authorities
are considering a proposal to allow the NSSF funds contributed
from the overseas IPOs of state-owned enterprises to remain
overseas for investment in overseas markets.
CONCLUSION
Domestic institutional investors in Mainland China face a
lack of investment channels and lack of portfolio management
tools. They are eager to seek ways to increase profit opportunities
and diversify risk. Investment in overseas securities market
is one possible way to achieve both goals. Among the various
institutional investor types, SIFs are the most regularised
and are the major focus of Mainland authorities for developing
the domestic institutional investor base. Nevertheless, the
possibility of other major types of institutional investors
being allowed to invest overseas should not be under-estimated.
* * *
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[1] These estimates were obtained from
various sources including speeches or remarks made by Mainland
market officials or practitioners at public occasions, and
private interviews with Mainland market people. The estimates
do not have a common time stamp and some are rough estimates
only.
[2] “Provisional Measures for the Administration
of Securities Investment Funds” issued by the State Council,
14 November 1997.
[3] “Pilot Measures for Open-end Securities
Investment Funds” issued by the CSRC, 8 October 2000.
[4] Disclosed by Gui Min-jie, Assistant to
CSRC Chairman at “Mainland Funds Forum 2003”, 7
December 2003.
[5] According to the WTO agreement, joint ventures
with foreign investment up to 33 per cent may be established
to conduct domestic securities investment fund management
business; foreign investment may increase to 49 per cent in
three years.
[6] Turnover of closed-end funds listed in
Shanghai and Shenzhen decreased by 54 per cent in 2002 compared
with 2001 and further decreased by 49 per cent for the first
10 months of 2003 on a year-on-year basis.
[7] “Chinese Privately Offered Funds”,
Xia Bin & Chen Daofu, Shanghai Far East Publishers, 2002.
[8] Source: Shenzhen Stock Exchange.
[9] “A discussion on asset management
by securities companies”, P.719-747 of A study of the
Front-line Problems in Chinese Securities Market Development,
Volume 2, in The China Securities Industry Association’s
Scientific Research Report 2001;Huaxia Securities’ Research
into Asset Management by Securities Companies, published in
Securities Times on 15 April 2003.
[10] “The notification about regulating
investment management business of securities companies”.
[11] The amended Insurance Law effective 1
January 2003, the Administrative Rules for Insurance Companies
effective 1 March 2000, the Provisional Measures for the Administration
of Investment in Corporate Bonds by Insurance Companies effective
June 2003.
[12] Source: “Developing institutional
investors in PRC”, the World Bank, September 2003.
[13] Insurance penetration rate is insurance
premium divided by gross domestic product, or GDP.
[14] Insurance premium per capita is insurance
premium divided by population size.
[15] Source: Sigma, World Insurance in 2001,
No. 6/2002, quoted in The Long-term Development of the Chinese
Insurance Market – from Monopoly to Competition , Hong
Kong Economic Journal, 14 November 2003.
[16] “Administrative Measures for Trust
and Investment Companies”, effective 10 January 2001
and amended on 6 June 2002; “Provisional Measures for
Administering Capital Trusts of Trust and Investment Companies”,
effective 18 July 2002.
[17] A policy was introduced in June 2001 to
require a certain percentage of state-owned shares to be sold
at IPO of companies and their subsequent share issuance in
both the domestic and overseas markets, the proceeds being
used to contribute to the NSSF. However, in the light of the
adverse effect on the domestic stock market, this policy was
subsequently suspended for share issuance in the domestic
market.
[18] “Provisional Measures for Investment
Management of the National Social Security Fund” issued
by the Ministry of Finance and MOLSS in December 2001.
[19] Disclosed by Deputy Chairman of NSSF Council,
Mr Gao Xi-qing, source: Hong Kong Economic Times, 17 November
2003.
[20] Same as footnote (19).
[21] The 10th 5-Year Plan for Labour and Social
Security, MOLSS, 24 April 2001.
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