Draft eyes orderly fund market
( 2003-06-24 00:19) (China Daily)
Small and medium investors are expected to get more
choice and market confidence will receive a boost under a draft law on
securities investment funds.
The draft legislation was submitted Monday to the latest session of
the Standing Committee of the 10th National People's Congress (NPC), China's top
legislature, for a second review.
The national legislators, who began their
bi-monthly session Monday, will also review draft legislation on residents
identity cards, ports, control and prevention of radioactive pollution, road
traffic safety and administrative approval during their week-long
meeting.
Securities investment funds are mainly mutual funds invested
primarily in stocks and operated by investment companies.
They are
attractive because most of the stock holders in the Chinese mainland's stock
market invest individually and are generally weak in shielding off risk, and
therefore more vulnerable to market fluctuations.
Retail investors pay a fee
to invest their pooled money in order to see more stable returns on investments
through the use of professional fund managers.
"Development of the
securities investment funds will help enhance investor confidence and ignite the
securities market,'' said He Yongjian, vice-director of the economics
legislation office with the Legal Affairs Commission of the NPC Standing
Committee.
Currently China has approved 28 investment companies who are
running 54 close-ended funds and 21 open-ended funds.
Close-ended funds are
those with a fixed number of total available shares. They cannot be resold to a
company for a fixed period of time and shares can only be traded among other
investors. In this way, the total investment of the fund remains unchanged.
Open-ended funds, on the other hand, are more common in the West and
availability is based on demand. In China, investors can only buy and redeem
their shares at banks and cannot sell them in the market during the life of the
fund.
The net assets of the country's securities investment funds has
reached over 120 billion yuan (US$14.5 billion), accounting for less than 10 per
cent of the nation's stock value, according to the latest statistics of He's
office.
But they are now governed by only a temporary regulation on the
management of stock funds, issued by the State Council in 1997.
A more
sophisticated law would oversee all registration and activities of investment
companies that run securities investment funds and help bring a more orderly
presence to current immature market sentiments, according to sources with the
legislature.
The draft legislation is expected to include stipulations that
standardize the operation of investment companies and check for irregularities,
such as opaque operations and late disclosure of information.
A draft bill is put forward for a vote
usually after three rounds of deliberations by national legislators, under
China's Law on Legislative Procedures.
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