Law on securities investment funds likely to pass

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Last updated at: (Beijing Time) Monday, October 27, 2003

Law on securities investment funds likely to pass

The draft law on securities investment funds is likely to be passed by China's top legislature which is debating it for the third time.

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The draft law on securities investment funds is likely to be passed by China's top legislature which is debating it for the third time.

The draft law was submitted to the fifth session of the 10th National People's Congress (NPC) Standing Committee Thursday and legislators intend to vote on it on Oct. 28.

"I suggest the draft law to be put to the vote and hope it will be passed as soon as possible," said Jiang Zhenghua, vice-chairman of the NPC Standing Committee.

If passed, the law will boost the country's securities market, which is quite depressed now, said Zhao Linzhong, an NPC deputy and chairman of the board of Furun, a listed company based in east China's Zhejiang Province.

Top legislators have paid great attention to an item to allow securities investment funds to borrow short-term loans from commercial banks, which had been in the second version of the draft bill but deleted in the third one.

Banks would be able to dabble in stock markets if the item were included in the law, according to the NPC Law Committee in its report on the amendment of the draft law.

Chinese commercial banks are forbidden to engage in non-banking businesses, such as securities and insurance, in a bid to reduce financial risks.

"The item would cause much more trouble than benefit in China's fledgling financial market," said Fang Xin, member of the NPC Standing Committee.

Opponents argued, unable to borrow money from banks, fund management companies will be in trouble if investors of their open-ended funds pour to cash in.

Accordingly, fund management firms are very much likely to cashin on the stock market so as to pay the money pack to their investors.

Some 14.18 billion shares of all 31 open-ended funds in China, with total shares of 76.3 billion, were cashed in in the first half of this year, forcing the funds to keep selling stocks they held.

"As far as we know, no company was unable to pay their investors back due to the lack of money," said Wang Yiming, vice chairman of the NPC Law Committee.

Fund management companies are required by the banking watchdog to hold a certain amount of deposit and treasury bonds to cope with such an emergency, he said, "It isn't an urgent problem."

The draft law can add items on how to deal with cashing in open-ended funds, especially when they come to a huge amount of payment,said Wang.

Financial businesses, including banking, securities and insurance, overlap each other, said Jiang, "It is a doomed trend."

Chinese banks are going to change their simple makeup of business though still not ready to do so now, he added.

"It is good for the draft law neither to allow nor ban," Jiang said.

The country's open-ended funds had flourished in the first halfof this year with each share up 9.28 percent in average.

However, fund investors poured to cash in their fund shares worrying the favorable situation would not last long and drop backto the slump as last year.

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