The Year of the Dragon here in China symbolizes auspiciousness, power and prosperity. That's some ideal mystical conditions for 18 new managed funds, that have entered the Chinese capital market. 2011 was a year of heavy losses for funds, with over 500 billion yuan essentially evaporating. So what's behind this recent bullishness?

Chinese fund management companies have kept their enthusiasm high in issuing new funds, although most funds, especially funds mainly invested in the share market, lost on average more than 25 percent last year.

Le Jiaqing, research director of Fund Management said: "Share funds on average saw losses of around 25 percent. They performed better than in 2008, but it's the first time they performed even worse than the key index."

But that hasn't deterred managed funds in China from flooding the market with new products. Around half the 18 newly-debuted funds offer share options. And it's just the beginning - 56 are on the waiting list for issuance. Experts say, this aggressive start to the Year of the Dragon is thanks to a management fee scheme, that charges investors a fixed percentage based on the fund's gross asset value.

Wang Yaoji, deputy director of Fudan University, Securities Research Center said: "The bigger the size of the fund, the more management fees it can charge to its investors, because it's based on a fixed percentage. So that's why they're becoming more prominent."

However, the increasing number of funds have drained the already inadequate levels of liquidity in the Chinese capital market. The average amount raised in January was only 654 million yuan per fund, which is lower than that of the same period last year by more than 50 percent.

Therefore analysts are concerned, the dense issuance may not serve the purpose of raking in high management fees, but rather putting the funds at risk when it comes to covering losses if the share market fails to perform well.

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