Beijing promises further stimulus to ETF industry

Chinese authorities have announced plans to step up state investment in the country’s fast-expanding exchange-traded fund industry and increase the number of ETFs investing in the technology sector and small and medium-sized enterprises.

The plans are part of a new stimulus package unveiled by China’s central bank and key financial and securities regulators on September 24 as the government seeks to revive economic growth and prop up struggling stock markets in the second economy in the world.

In a press conference, Pan Gongsheng, governor of the People’s Bank of China, announced measures such as cuts in the benchmark interest rate, plans to support China’s beleaguered housing market, as well as liquidity support of at least Rmb800 billion ( 113.76 billion dollars). supports the local stock market.

Speaking at the same press conference, Wu Qing, head of the China Securities Regulatory Commission, announced plans to encourage the launch of more small- and mid-cap ETFs, particularly those that will target the growth market of enterprises in China and Sci-Tech Innovation Council. .

The move is meant to “better serve investors and the national strategy,” he added.

The Shanghai Stock Exchange’s Nasdaq-style science and technology board, called Star Market, was launched in 2019 to help attract more capital to China’s tech sectors and emerging companies.

There are two main indices that track China’s science and technology board, the SSE Star 50 and the SSE Star 100. Only five ETFs track the SSE Star 50 index, while another seven track the SSE Star 100 index, according to Wind data.

Wu referred to the 10 new “popular” CSI A500 ETFs, which all completed their initial fundraising in the past week after getting fast-track one-day approval from the regulator earlier this month.

Seven of the new CSI 500 ETFs from firms including Harvest Fund Management and JPMorgan Asset Management raised at least R2 billion each. The CSI A500 index was launched in China on September 23.

“We will further optimize the registration of equity fund products, promote the innovation of index products such as core ETFs, and launch more mid-cap and small-cap ETF fund products in due course,” Wu said.

Jia Zhi, managing director of asset management at ChinaLin Securities, told Ignites Asia that he believes the latest regulatory push could help boost investor confidence in the ETF market and smaller-cap long-term fund products long.

“But the lack of liquidity in mid-cap and small-cap ETFs and the relatively short patience of investors to generate returns will limit demand for such products,” he added.

Over the past 12 months, China’s sovereign wealth fund “domestic team”, notably Central Huijin Investment, has invested billions of renminbi in a broad-based ETF that tracks the CSI 300 index in a bid to boost the A-share market and to rekindle the investor. trust.

At the press conference, Wu, who was appointed to head the securities watchdog in February, said the CSRC would continue to work with Central Huijin to “increase its holdings and expand its investment scope” in long and medium term investment funds.

He added that Central Huijin has already played a “very important role in stabilizing the market and increasing confidence” and that many investment institutions and research institutions at home and abroad also believe that the market valuation of A shares is at a historical minimum.

In the first half of the year, Central Huijin injected more than 330 billion lei into the CSI 300 ETFs managed by Huatai-PineBridge Fund Management, E Fund Management, Harvest Fund Management and China Asset Management, as well as the SSE 50 ETF at China AMC.

By the end of the second quarter, Central Huijin’s holdings in these five broad-based ETFs had a total market value exceeding Rmb430 billion.

This massive injection of capital has helped China’s ETF industry grow from 1.39 billion renminbi in early 2023 to 2.27 billion renminbi at the end of June this year.

During the press conference, PBoC chief Pan also outlined plans to create a “swap facility” for securities firms, fund companies and insurance firms to tap liquidity from the central bank by pledging assets, with Rmb 500 billion earmarked for stock market investment in the first place. scheme phase.

Assets pledged under the swap facility will include bonds, equity ETFs and CSI 300 index stocks, and liquidity will include government bonds, central bank notes.

Pan said the move will significantly enhance the ability of financial institutions to access capital and hold equity.

CSRC’s Wu also said the regulator will continue tax reforms in the public funds industry.

Last July, the CSRC began its long-term reforms to industry fees by instructing fund companies to reduce management fees for onshore mutual funds.

It then introduced new rules to reduce the trading fees that fund firms pay to securities houses and plans to overhaul disclosures about fund fees and cap trailer fees that asset managers pay sales agents.

Wu, a former Shanghai mayor nicknamed China’s “Broker Butcher” after he forced the closure of a quarter of the country’s securities dealers in the 2000s, also outlined reforms he is pursuing to overhaul the local securities industry. funds.

“The focus will be to urge fund companies to further correct their business philosophy, adhere to investors’ return orientation, focus on improving investment research and service capabilities, create more responsive products people’s needs and strive to create long-term profits. for investors,” Wu said.

Since Wu’s appointment as head of the CSRC earlier this year, Chinese fund firms have faced months of on-site inspections by local branches of securities regulators and the National Audit Office, in as authorities seek to expand governance oversight and crack down on misconduct in the industry.