China has given its first three transformed securities investment funds the go-ahead to issue new shares to increase their capital, marking a milestone in the government's efforts to regulate the old funds.

All investment funds existing before the promulgation of a regulation on securities investment funds in November 1997 are known in China as "old funds."

In the late 1980s, many investment funds were emerged overseas only for investing in China. Encouraged by this trend, some local governments in China began to the set up their own investment funds.

In 1991, China's first investment fund, the Zhuxin Fund, was started in Zhuhai, a southern China coastal city neighboring Macao.

Up to 1994, more than 70 such funds were approved by local governments and branches of the People's Bank of China, the country's central bank.

These old funds have many inherent drawbacks in internal management, risk control and information disclosure, mainly because no laws over them existed then.

For example, the nature of some of the old funds was not clearly defined in their constitutions, and some closed-end funds did not have a life span.

For some funds, the sponsor, custodian and manager were one and the same, while many funds did not set limits on fields of investment.

In addition to these drawbacks, the old funds were often too small in the size of capital and not economically viable, and did not serve to stabilize the market as the government had expected.

In 1993, the central bank realized the problem and ordered improvements in the issue of new funds. A year later, the approval of new funds was stopped.

With the State Council regulations on securities investment funds in place in 1997, China began to experiment with regularized securities investment funds.

Since then, the authorities have approved about 20 securities investment funds and nine professional fund management companies. Fifteen of the funds have been listed on the Shanghai and Shenzhen stock exchanges.

The performance of the new funds in the last two years has proved satisfactory to both investors and the regulator in earnings, internal management, risk control, information disclosure and stabilizing the market as rational investors.

These conditions led to the transformation of the old funds into regularized securities investment funds.

The first step taken is to convert real estate and other assets of poor liquidity from the old funds into cash, stock and other assets of good liquidity, as securities investment funds could only invest in stocks, treasury and other bonds.

The funds are then transferred to professional fund management companies approved by the China Securities Regulatory Commission and put under the control of commercial banks approved by the central bank.

Like all the new funds, the transformed old funds are unit- trust and closed-end.

Analysts say the transformation of the old funds would help regulate the capital market and prevent financial risks. It would also produce a stronger group of securities investment funds that would promote the sustainable and healthy development of the securities market. (Xinhua)

Huge Market Opportunities For China's Ethnic Groups

BEIJING, November 4 (Xinhua) -- More businesspeople are seeing huge investment opportunities in areas populated by China's ethnic groups.

Wen Jing, the vice-minister of the State Ethnic Affairs Commission said at the just-closed fair on products from ethnic groups that although economic development in these areas lags behind other regions in China, they are rich in natural resources and economic potential.

"China's ethnic groups are now experiencing rapid economic development and are qualified to be good business partners," Wen said.

"The 600 investments projects and some 1,200 products from China's ethnic groups at the Fair clearly indicates the enormous investing potential among these ethnic groups," Wen added. (Xinhua)