In Depth: China’s Mutual Fund Industry Faces Overhaul After a Banner 2025

1. In 2025, the Chinese mutual fund industry experienced a significant turnaround, delivering strong returns after several difficult years for investors. The overall industry assets under management (AUM) surged to over 37 trillion yuan (approximately $5.4 trillion). In the context of a technology-led bull market, almost 95% of mutual funds that operated for the entire year saw positive returns, underscoring a robust recovery in investment performance. [para. 1]

2. However, the year’s significance extended beyond investment performance to landmark regulatory changes. On May 7, the China Securities Regulatory Commission announced a comprehensive action plan aimed at shifting the mutual fund industry’s focus from mere scale—growing assets under management—to a greater emphasis on returns for investors. This regulatory push was designed to foster long-term stability and benefit investors by incentivizing quality over quantity in fund management. [para. 2]

3. Despite the positive intentions behind these reforms, the industry faces notable challenges in changing its culture. Deeply entrenched practices have seen fund companies frequently pursue market “hotspots” with highly concentrated bets, emphasizing rapid asset growth even at the expense of long-term investor interests. Obstacles to reform include structural misalignments between fund managers and investors, ambiguous regulatory language in some new sales rules, and the operational difficulty of meaningfully implementing long-term performance assessment at all decision-making levels. [para. 3]

4. In 2025, this legacy playbook was particularly evident in the technology sector. Many funds placed aggressive bets on artificial intelligence (AI), with the year’s top performer—a technology select fund managed by Ren Jie of Maxwealth Fund Management—achieving an extraordinary 240% annual return. Starting with only 10.3 million yuan in late 2024, the fund’s assets soared to over 10 billion yuan by September, propelled by its strong showing in the cloud computing supply chain. This high-conviction, high-reward approach has become common but carries risks, especially for retail investors. Critics caution that this model encourages following trends and can result in losses when market sectors correct. Even managers like Ren Jie warn against assuming past performance predicts future results. [para. 4][para. 5]

5. In response, regulators are targeting sales practices that contribute to this high-risk model. New draft codes of conduct for fund sales—described as the strictest ever—would restrict misleading marketing, such as touting “no subscription fees” for funds that instead charge costly daily service fees to long-term investors. The regulations also aim to prohibit promotions based on “year-after-year positive return” lists, which mislead investors about future performance based on past results. [para. 6][para. 7]

6. The reforms further seek to mitigate the “star fund manager” phenomenon, discouraging excessive promotion of personalities that might attract unsophisticated investors. The new rules would ban practices like inflating a manager’s experience or using personalities primarily to attract rapid inflows of capital. The overarching goal is to align investment products more closely to the needs and profiles of suitable investors, fostering prudent, long-term decision-making among both firms and clients. [para. 8][para. 9]

7. One of the most challenging aspects of reform is tying compensation for fund managers to long-term performance. Draft guidelines announced in December would link bonuses to three-year performance, slashing performance-based pay by at least 30% if a manager’s fund underperforms its benchmark by more than 10% without making a profit. Additionally, the framework would require managers and key personnel to defer at least 40% of their bonus for a minimum of three years and to invest directly in their own funds. [para. 10][para. 11]

8. These changes are expected to better align the interests of managers and investors, incentivizing sustainable results over short-term gain. Industry observers predict that while the reforms will benefit leading research-driven and compliant institutions, smaller firms may need to adopt more innovative strategies to remain competitive. Ultimately, the aim is for these comprehensive reforms to benefit investors by fostering a healthier, more transparent fund industry. [para. 12]