GUANGZHOU (Fund China) - The bullish market has brought many unprecedented records. In which, the domestic fund management asset soares easily to 3 trillion yuan. But the bullish market covers up a lot of truth, the supervision and management departments still can not find the evedence in the Rat Trading investigation even after more than six months. When more and more fund managements treat the rat trading as a normal behavious, then the 3 trillion yuan would be a big big problem needed to be seriously thinking about.

Since last year, the domestic fund industry achieved an unconventional leap-forward development, the publish offering fund asset scale has over 3 trillion yuan boosted by a large number of low&medium income families switching their many years banking saving into fund shares.

In the fund industry one year tripling growth process, the fund managements pursuited vigorously sustained marketing via fund split, large porportion dividends and many other controversial means. And gains support or acquiescence from the China Securities Regulatory Commission in such a Happy Valley type expansion.

But when regulators blindly keen to promote the fund companies expansion, the resonsibility of investors protection and ensuring market fairness, efficiency, transparency and reducing system risks seems to be neglected. It will threaten the investors vital interests and also will lead to a large amount of short-term capital injection into the market which would increase the stock market sysytem risk via split or large proportion dividends means or attracing the investors who did not know the truth by one yuan net value.

Taking the“twin fund”investment advisory operation engaging in by the fund managemnets present as an example, the “twin fund” usually issues in the form of banking financing products, but is in charge of the fund managements actually. When managing the “twin fund”, the fund managements not only can gain the management fee, but also obtain a 20% performance reward, and this will form a benefit conflict as the fund managements only pick up the management fee of the public offering funds. Such a conflict will lead to an incentive drive for the fund managements to change the”twin fund” to be the rat trading of the 3 trillion yuan public offering fund.

It is according to the announcement “the related problems in fund managements provid investment consulting services to special targets notice” internal issued by CSRC fund Ministry in the early 2006. However this “notice” only makes some basic principles to prevent transfer of benefits, the specifical implementation depends on the fund management entierly conscious action which lays out a door for fund rat trading.

It is noteworthy that if the “weight develop light monitoring” becomes a development mode, then the fund rat trading will be more unscrupulous and will lead to a confusion of the fund industry development order. The fund management will lost its trustee obligations in the self-expansion strengthened continually, and the 3 trillion fund asset will be exposed in the risk and lacking of effective security protection.

In the last year’s fund industry’s “Great Leap Forward”, some large fund managements can expand so quickly

Relying on the new fund approval and old fund split indicatros and the “closed-end to open-end” change. The whole fund industry is really in a psychological imbalance. To develop then purse realstionship business, which has almost becom a consensus in the fund industry. A fund company’s employee, said with deep feeling: “rent-seeking can improve efficiency.”

In the course of the actual operation, a medium-sized company fund managers annual cost for public realtionship will be as many as 3 million, and a considerable number of the amount is used to buy gifts for engaging in relationship with upper class, between the fund managements normal business dealings and commercial bribery seem to be no a clear boundaries. Although there are a number of formulated laws and regulations in the industry but not be believed in. Most of them are tantamount to a mere scrap of paper which is indeed a problem worthy of ous serious consideration.

Copyright Fund China 2008.

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