The country's first open-ended fund is likely to be launched soon by the Shanghai-based Hua'an Fund Management Co, which was chosen as the best candidate for the reform after the evaluation of overseas experts since last year.

Open-ended funds are investment funds where the number of units in issue varies from day to day, as opposed to closed-ended funds, which have a fixed number of shares in issue.

Four new fund management firms will also be established in the near term, the spokesman said.

The government is stepping up its preparation for the first batch of Sino-foreign fund management joint ventures and drafting relative regulations, he said.

Following the opening of the B-share market to domestic investors, parallel measures to attract more overseas institutional investors to the hard-currency market will also come out.

The government's determination to deepen market reforms and further open up the bourses is a very positive signal for overseas institutions, analysts said.

A good market order will heighten investing confidence for foreign investors, who can also put some fresh blood into the domestic fund industry, they said.

CSRC's Sunday remark closely followed its disclosure of the irregularities of many of the domestic fund managers late on Friday.

It was the first time for the government to reveal details of a low-profile probe into the fund industry since the media cottoned on to behind-the-curtain trading of fund managers late last year.

The investigation found evidence of abnormal trading in eight of the 10 fund management firms.

Only two fund management firms were operating to the standards, while five companies were found to have mild irregularities and the other three were more deeply involved, the CSRC report said.

A number of officials involved, including 30 senior fund management staff, have been sacked, demoted or fined, the report said.

A common method for irregular fund managers is to shift stocks within their own accounts, acting as both the seller and the buyer of the same stock frequently within one trading day to manipulate the price of the stock.

The problem was most pronounced for Beijing-based Boshi Fund Management, which will undergo further investigation by the authorities to see whether their behaviour has constituted securities frauds according to the Securities Law.

"Having good credit for the market and the public is the basic ethic for people involved in the fund management business," the CSRC spokesman said.

Those breaking the statutory restrictions must be punished.

When the probe over irregularities is carried on, CSRC will also upgrade regulations to watch over further risks with assistance from exchanges and custody banks.

But regulators are still determined to boost the number and type of institutional investors, though in a more disciplined way, the CSRC spokesman stressed.

"Rebuilding the order of the fund management business is to pave the way for further market reform," a domestic researcher said.

As well as open-ended funds, fund managers can go on with other innovations after a thorough inner reform, including ways to absorb more insurance funds, the spokesman said.

More workers with overseas working experience will be recruited for the business.

(China Daily 03/26/2001)