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First Mainland China ETFs OK'd For Launch
By Staff | 27 March, 2012

[This article previously appeared on our sister site,]

China’s securities regulator approved the first-ever ETFs that will trade in mainland China and track stocks listed in mainland China on both the Shanghai and Shenzhen exchanges—the latest sign that China is broadening access to its investment market.

The China Securities Regulatory Commission (CSRC) approved the Huatai-Pinebridge Fund Management Company to issue ETFs linked to the CSI 300 Index, a benchmark of blue chips in mainland China, according to an article on MarketWatch that cited a joint press release issued by the Shanghai Stock Exchange and the asset management firm. The ETFs, which weren’t specifically identified, will trade on the Shanghai Stock Exchange, the report said.

The CSRC’s approval is a milestone in the history of ETFs, and clearly suggests that China is eager to broaden access to its markets, particularly at a time when share prices there are relatively low and could use a shot in the arm. The new ETFs are likely to appeal to foreign institutional investors who want a piece of the action in the growth of what is now the world’s second-biggest economy, according to a separate published by the Reuters News Agency.

China allows foreign investors to participate in mainland China’s stock and bond markets via its qualified institutional investor program (QFII). Some of the world’s sovereign wealth funds are among the biggest participants in the QFII arrangement. The ETFs are likely to be favoured by such players because they provide greater liquidity than other passive investment products, according to the Reuters report.

Also, the new ETFs could well become popular tools in China’s nascent hedge fund industry to hedge risks and develop new products, the Reuters story said.

The upcoming launch is, in a broader sense, the latest sign of the rapidly expanding world of ETFs.

In the United States, assets in US-listed ETFs are now around US$1.203 trillion—a reflection of their growing role in investment portfolios, increasingly at the expense of mutual funds. Moreover, some of the biggest US-listed ETFs are focused on Chinese companies. For example, the iShares FTSE China 25 Index Fund (NYSEArca: FXI) has more than US$6 billion in assets, though it holds only companies whose shares are listed in Hong Kong.

It wasn’t immediately clear when the two ETFs that had been approved might actually be launched.

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Larry Swedroe

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