China has issued new guidelines to encourage the $1.2 trillion mutual fund industry to innovate, promising to let more foreign firms into the industry as part of Beijing's recent efforts to boost the stock market and the real economy.
The guidelines will be a blueprint for the development of the domestic industry in the next three to five years, a regulatory spokesman told a weekly news conference in Beijing on Friday.
By the end of May, China's 91 mutual fund companies with 680 funds managed a total assets of 7.25 trillion yuan ($1.2 trillion), making the domestic fund industry the 10th biggest in the world, official data shows.
Still, stock holdings by professional institutional investors, dominated by mutual funds and brokerages, only accounted for 10.87 percent of China's total stock market capitalisation by the end of last year.
The fledging market is dominated by much less sophisticated retail investors, a result that has led to rampant speculation in loss-making and other small-capitalised firms and a lack of interest in blue chips favoured in more mature markets.
"Aggressively expanding securities mutual funds is an important task to promote the healthy development of China's capital markets," the China Securities Regulatory Commission said in a summary of the guidelines published in its microblog.
"The principles to develop the industry include letting the market play a decisive role in innovations and letting the sector's developments serve the real economy," it said.
The new guidelines will encourage fund firms to create new investment products that cross different markets and assets, such as cooperating with banks and brokerages to launch asset management products.
Fund managers could also outsource their business so as to reduce operational costs, the regulator said in the guidelines, adding that both major and smaller fund firms would be encouraged so as to build a multi-level fund industry.
The authorities will in future raise the current foreign ownership limit of 49 percent for Chinese joint-venture mutual fund firms, the regulator said without elaborating.
Regulators will also encourage fund firms to cooperate with Internet operators and allow the establishment of more private equity entities, among other supportive measures.
China's stock market has been relatively sluggish in the aftermath of the global financial crisis. A slowdown in the world's second-largest economy is also threatening a recovery.
More than $1.4 trillion in value, equivalent to 16 percent of China's gross domestic product in 2013, has been erased from the Shanghai and Shenzhen exchanges since the main Shanghai Composite Index's record peak of 6,124 points in 2007.
That has brought the average price/earnings ratio of around 2,500 Chinese listed firms to less than 10 times historic earnings, from more than 70 times in 2007, exchange data showed.
More recently, however, domestic institutional investors appear to have gone back into equity markets, following classic economics of buying low ahead of a possible turn as Beijing ramps up stimulus to boost the economy.
The main index closed up 0.93 percent on Friday but is still down 2.13 percent so far this year.
($1 = 6.21 Chinese yuan) (Editing by Jacqueline Wong)