China Signals Support for Private Funds With Toned-Down Rules

The Asset Management Association of China (AMAC) has released new guidelines for regulating China's private securities funds (PSFs), which will take effect on August 1. These guidelines come after a year of public feedback on the draft version and aim to manage risk in the sector without overly restricting fund operations [para. 1][para. 2].

China's private fund industry, valued at approximately 20.3 trillion yuan, is under increased scrutiny by regulators. The industry includes private funds that invest in securities such as bonds and listed stocks. Unlike publicly sold mutual funds, these private funds cater to institutions and wealthy individuals and operate with less transparency and regulation, raising concerns about potential fraud [para. 2][para. 3][para. 4].

The initial draft of the guidelines had proposed stringent measures that led to worries about excessive regulatory interference in fund management. For instance, it was suggested that PSFs with net assets below 10 million yuan for 60 consecutive days should be liquidated unless fluctuations were due to market volatility. This raised concerns about the viability of smaller funds, which often maintain low asset levels for greater flexibility [para. 5][para. 6].

However, responding to feedback, the final guidelines have relaxed several provisions to ease the transition for PSFs. The threshold for forced liquidation has been reduced from 10 million yuan to 5 million yuan. Additionally, liquidation procedures will now only commence if a fund’s net assets stay below this new threshold for 120 consecutive days after stopping new subscriptions. These changes will not be implemented until January 1, 2025 [para. 6][para. 7].

According to AMAC data as of March end, there are over 8,300 PSF managers in mainland China managing around 92,000 funds with total net assets close to 5 trillion yuan. The majority of these assets are managed by the top 400 managers [para. 8].

The revised guidelines also maintain existing limits on investment exposure but provide clearer calculations for easier implementation. They allow PSFs more flexibility in subscription or redemption activities by permitting them once a week instead of just once a month as previously drafted [para. 9][para. 10]. Furthermore, the transition period for compliance with these new rules has been extended from one year to two years [para. 11].

Overall, these adjustments indicate an effort by Chinese regulators to balance effective oversight with operational flexibility within the private securities sector.