The China Securities Regulatory Commission (CSRC) issued a circular on Wednesday to standardize the marketing and promotion activities of mutual funds.

Although the nation's initial public offerings (IPOs) are attracting massive numbers of subscriptions, securities regulators are well aware of the risks involved.

The circular states that fund management firms and their sales agents are prohibited from conducting abnormal competition, such as offering commission and cash as gifts to win customers for the fund products.

Exaggerating funds' returns or attacking other companies' products is also forbidden.

Those rule-breakers may have their licences suspended or be forbidden from selling new products, the rule said.

Hu Zhiguang, an analyst at the China Securities Co, said that the risk of unfair competition among fund sales agents has increased as many fund IPOs take place across the country.

Some other agents have been known to scrap subscription fees or offer commission to buyers in order to win more customers, despite the fact that such a low-price strategy may actually bite into their own profits, he said.

Such bitter competition often accompanies boom periods in an industry, but stricter regulation and closer checks on companies' operation will help curb such irregularities, he said.

China's mutual fund market has expanded rapidly over the past few years, gathering pace with this year's spate of IPOs.

Hu estimated that a total of 250 billion IPO fund units might be sold this year if the stock market keeps the upward trend. A total of 50 billion units have already been sold in the first quarter of this year.

Despite increasingly fierce competition, many fund managers remain positive about the sector's future, thanks to the nation's healthy economy and good stock market performance.

Xu Kelei, Marketing Development Manager of ABN AMRO Xiangcai Fund Management Co, commented that the "new regulation is unlikely to affect our pace of product development.

"As a joint venture, our shareholders will place more emphasis on product development and management, instead of relying on cut-price competition," he said.

The joint venture is now applying to the CSRC for approval, expected within the next two months, to issue a new equity fund.

But newcomers to the sector are feeling increasingly under pressure, given that more than a dozen mutual funds have already been issued so far this year.

Xu said his team were prepared for new challenges which could be faced during the marketing of the new product, such as a slower pace of subscription.

(China Daily April 2, 2004)