SCIO briefing on actively encouraging the flow of medium- and long-term funds into the capital market and promoting its high-quality development

Xinhua Finance:

Since Sept. 26 last year, the meeting of Political Bureau of the CPC Central Committee has proposed steadily advancing the reform of public offering funds. What progress has been made in promoting the reform of public offering funds and increasing the scale and proportion of equity funds? Thank you.

Wu Qing:

Thank you for your question. Public offering funds are indeed important institutional investors and buyers in the capital market. Through professional investment services, they help investors share the growth dividends of listed companies and promote a positive interaction between economic development and the growth of residents' wealth. In recent years, the public offering fund industry as a whole has maintained a stable development trend. Its total scale has grown from 13 trillion yuan in 2019 to 33 trillion yuan by the end of last year. Among them, the scale of equity funds mainly invested in stocks has grown from 2.3 trillion yuan to 8.2 trillion yuan, and the value of equity ETFs has exceeded 3 trillion yuan.

In recent years, due to complex factors such as stock market fluctuations, especially in the past two years, some equity funds have suffered losses. The public offering fund industry has also exposed such problems as deviations in business philosophy, deficiencies in corporate governance and short-term investment behavior. According to deployments at the meeting of the Political Bureau of the CPC Central Committee held on Sept. 26 last year on steadily advancing the reform of public funds, the CSRC has adhered to the value orientation centered on the people, conducted in-depth inspections and analysis of prominent problems in the public offering fund industry, and proposed targeted reform measures after careful research and demonstration. A preliminary reform plan has now been formed. The overall considerations are as follows:

First, we will improve the governance and positioning of fund companies. We will strengthen the CPC's comprehensive leadership over the fund industry, further improve the governance of fund companies, ensure that shareholders' meetings, boards of directors and management teams fulfill their duties with due diligence, and firmly establish the business philosophy that prioritizes investors. We will systematically reform the industry's assessment and evaluation system, and comprehensively strengthen long-cycle performance assessments. The requirements in this regard are consistent with what Mr. Liao just mentioned, which is to extend the assessment cycle. We will enhance the incentive and restraint mechanisms as well as the compensation management system. The focus will be on aligning the interests of fund companies, their senior executives, and fund managers with those of investors. This is to prevent a preoccupation with scale at the expense of returns and to curb the tendency to prioritize asset growth over investor profits. We will further steadily lower the comprehensive fee rate of public funds. The fund sales fee rate will be further reduced starting in 2025 on the basis of reduced fund management fee rate, custody fee rate and transaction fee rate. It is estimated that this will save investors a total of approximately 45 billion yuan in fees each year, representing significant real savings for investors.

Second, we will strengthen the function of the fund industry by prioritizing the development of equity funds. As mentioned earlier, the implementation plan clarifies that the market value of A-shares held by public offering funds will increase by at least 10% annually over the next three years. The reform of public offering funds will help achieve this annual growth target of 10%. We will carry out the following four tasks in the reform of public offering funds: First, we will launch more products that meet the needs of investors, intensify innovation in medium- and low-volatility products, and transform the pilot program of floating fee rate products into a regular practice. Second, we will accelerate the development of index-based investment, formulate an action plan to promote the high-quality development of index-based investment, and implement a fast-track registration mechanism for equity ETF products, under which registrations should in principle be completed within five working days from the date of acceptance. These efforts are designed to further facilitate investments in the market by various type of medium- and long-term capital. Third, we will strengthen the guidance of regulatory classification evaluation, increase the proportion of equity funds in the scale and weight of indicators such as long-term performance in the regulatory classification evaluation, and guide fund companies to allocate a certain proportion of their annual profits to purchasing their own equity funds. Fourth, we will urge fund companies to enhance their core investment and research capabilities. This involves establishing an evaluation system for the investment and research capabilities, guiding fund companies to strengthen their construction of core investment and research capabilities, and effectively increasing abilities in asset allocation risk management.

Third, we will strengthen regulatory enforcement and effectively protect the interests of investors. We will improve laws and regulations in key areas such as shareholder equity, personnel management and market exit. We will strengthen the guidance and regulation on fund investment and trading behaviors, resolutely correct excessive speculative behaviors such as "high turnover rate" and "style drift," intensify the investigation and punishment of illegal and irregular behaviors, severely crack down on all kinds of illegal and irregular behaviors in fund investment, and enhance social supervision over the information disclosure of fund companies, to further foster a clean and upright industry culture.

At present, the CSRC is further strengthening research, listening to opinions and suggestions on the reform plans from various groups including industry institutions and investors. We will make revisions and improvements as soon as possible to ensure their early implementation. Thank you.