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China funds creep towards profitability

Despite rapid growth in recent years, the investment management industry in China is hampered by volatile flows, strict regulation and an uneasy relationship between fund managers and distributors. Joint ventures with overseas firms have met with mixed success. Julie Dalla-Costa reports.

CHINA'S FUND MANAGEMENT industry has grown rapidly over the past six years to amass $20 billion in assets under management. And foreign fund managers are enthralled by the domestic market's vast potential.

But Sino-foreign joint venture fund management firms are having a tough time of it. Last year, several funds for domestic investors were launched but quickly lost up to half of their assets under management because of speedy redemptions.

ABN Amro Asset Management was the first foreign firm to enter China's domestic fund management industry when it bought into an existing local fund manager, Xiangcai Hefeng. In April 2003 the firm completed the public offering for its first mutual fund in China, raising Rmb2.63 billion ($318 million).

But by the end of December the umbrella fund had lost nearly 50% of its assets to reach Rmb1.43 billion. Its growth sub fund suffered the largest percentage drop in terms of assets between launch date and the end of 2003 (60%). The stable sub fund lost 47% of its assets over the same period, and the cyclical sub fund lost 20%.

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