The further development of Chinese fund industry, which is facing growth bottleneck, calls for improved competitiveness in the process of internationalization, innovation of legal systems and products sales channels, and enhanced supervision and credibility of regulation, said Vice President Xu Ming of the Shanghai Stock Exchange (SSE) at the "SSE - 1st Global Summit on Fund".
In the analysis, at the summit, of the growth bottleneck and deep-seated problems the securities investment fund industry is facing, Xu said that the following four aspects should be paid special attention to: first of all, despite the increasing number of fund management firms and funds, the total size of funds under management stayed stagnant for years and won't see a qualitative leap in the short term. Secondly, the evident homogeneous competition leads to difficulty in innovation of fund products. Thirdly, the undiversified funds sales channel results in a high cost as sales agents share management fees with fund management firms while obtaining the subscription fees they deserve. Finally, the high turnover of management talents of public funds impaired the image and professional wealth management capability of public funds to some extent.
In this context, Xu believes that fiercer competition in the backdrop of internationalization, lack of drive for industry innovation, neglect of regulation and reliance on control, confusing relations between administrative management and industry governance are the main reasons. And the sustainable and healthy future development of fund industry calls for a favorable environment beneficial to further opening-up, growth and innovation.
"The fund industry needs to enhance its competitiveness in the process of internationalization. In the mainstream industry trend of international competition, public securities investment funds can't afford to fall behind. Therefore, domestic fund firms should follow the trend and initiate such investment and wealth management businesses as domestic and foreign private funds and public funds by way of taking stake in other institutions."
As an increasing number of joint venture fund management firms are established and more domestic enterprises set up subsidiaries in Hong Kong in recent years, China's securities investment fund industry is stepping up its internationalization pace. However, Xu holds that the degree and speed of internationalization of securities investment funds don't live up to expectations as professional assets management institutions including international hedge funds boast a faster pace in entry into domestic market.
Besides, Xu thinks that the fund industry needs to strengthen its attractiveness in the process of continuous innovation and competition for innovative products, sales channels and legal systems. "Under the current fierce competition atmosphere in the assets management market, Chinese fund industry's institutional strength has been learnt thoroughly by competitors. Due to the disappearance of previous advantage in channels, our products may be surpassed by new wealth management tools."
In addition, Xu said that strengthened supervision over fund industry is expected for improved credibility of regulation.
In the improvement of effective supervision over fund industry, the following three aspects of relations should be dealt with properly. Firstly, the relations between loosing control and realizing effective supervision. "Supervision means establishing the rules of the game and punishing the violators for strict observation of those rules, while control means fulfilling the basic function of resources allocation through the power of administration, with a typical example being the strict examination and approval for market entry and business permission." Xu said that with the gradual growth and perfection of China's fund market, relaxing control, tightening supervision and adopting differentiated multi-layer supervision measures, especially for innovative products and procedures of examination and approval, would be vital to the sound development of fund industry.
Secondly, the relations between strict supervision and proper supervision. He holds that in the future amendment to fund laws, before the inclusion of private funds into supervision scope, the principle of proper supervision should be established, whereby the experience from public funds is learnt yet the legal status of private funds is not easily fixed with the mode used in public funds.
Finally, in the current fund supervision, the core status of regulator in securities market system is defined in laws. However, due to the complexity, technique and hugeness of funds, the governmental supervision should also include governance management and industry self-regulation. In Xu's eyes, stock exchanges, the organizer and administrator of securities trading, also bear the duties of market governance, including propelling on-floor products innovation and standardization, formulating listing criterions, regulating funds listing, monitoring legitimacy and compliance of investors' trading behaviors on real-time basis, and discovering and deterring violations in time.
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Vice President Xu Ming, Shanghai Stock Exchange: Build Desirable Growth, Innovation Environment For Fund Industry
Date 11/04/2011