China’s Securities Regulator Demands Overhaul of $85 Trillion Fund Industry, Targeting Investor Returns and Innovation

CSRC Chairman’s Speech at Asset Management Association Congress

China Securities Regulatory Commission (CSRC) Chairman delivered a high-profile speech at the fourth member congress of the Asset Management Association of China (AMAC), setting out a comprehensive policy framework for the fund industry through the end of the decade. The address, described as a first move to implement the State Council’s newly released guidelines on private investment funds, charted the sector’s achievements, acute structural weaknesses, and the urgent shift from a “scale-first” to a “returns-first” philosophy.

With total industry assets under management surpassing 85 trillion yuan, China now hosts the world’s second-largest fund industry. The chairman noted that since 2023 public funds have been recalibrating their business models—aggressive fee cuts, stricter performance benchmarks, and revised incentive structures—while private funds are undergoing a fierce clean-up, with more than 20,000 firms eliminated and over 400 managers now exceeding 10 billion yuan in assets. Over the past five years, private equity and venture funds have injected 5.25 trillion yuan into unlisted companies, equivalent to 90% of equity financing on domestic exchanges, and public stock holdings have grown to 13.7% of the free-float A-share market, cementing the industry’s role as a market stabilizer.

The speech acknowledged persistent flaws: equity-oriented public funds account for less than 30% of assets versus the 60% average in mature markets, product homogenization remains rife, and private fund practices such as illegal capital pooling and connected-party abuse still surface frequently. The chairman warned that without “strong regulation” and a painful transformation, the industry risked “bad money driving out good.” Immediate actions include a three-year action plan to implement the private fund guidelines, a new “1+N+X” regulatory system encompassing entry, ongoing supervision, risk resolution and service development, and a renewed push for AI-driven operational innovation.

What the Regulatory Blueprint Means for China’s Fund Industry

Stricter Private Fund Compliance Will Rewrite Competitive Dynamics

The explicit reference to a three-year action plan and a layered regulatory framework signals that the era of lax enforcement is definitively over. Private fund managers—especially those still exploiting regulatory gaps with shadow holding structures or undisclosed conflicts of interest—face a rapid compliance overhaul or forced exit. The government’s emphasis on coordinated central-ministry-local supervision suggests provincial-level tolerance of risky practices will evaporate. Surviving firms that successfully adapt their compliance infrastructure now could gain preferred access to onshore capital, particularly as the guidelines also promote market-based entry and exit mechanisms, which will favor managers with clean records and transparent structures.

Public Funds’ Returns Overhaul Will Test Industry Giants

The CSRC’s blunt critique that the sector remains “big but not strong, big but not excellent” puts pressure on large public fund houses to demonstrably improve performance. The mandate to strengthen equity investment capabilities and to align product development with investor outcomes—not management fees—implies that the next wave of reforms will target fee structures more aggressively and demand clearer accountability for underperformance. Bosses who continue to chase scale through frequent new launches or opaque distribution incentives are directly in the line of fire. A likely consequence is accelerated consolidation among smaller public fund managers unable to afford the investment in research, technology, and distribution shifts required by the new regime.

Patient Capital and Technology: The New Growth Axis

The speech positions venture and private equity as strategic tools in China’s tech self-sufficiency drive, with explicit encouragement to “invest early, invest small, invest long-term, invest in hard technology.” This is underpinned by a promise to streamline regulations for state-owned limited partners, including relaxed accountability mechanisms and more flexible performance assessment. For managers, this means a growing share of mandates will come from government-guided funds and pension-linked vehicles with longer lock-ups, altering the traditional IRR-driven fundraising narrative. At the same time, the acceptance of programmatic trading and the call to adopt AI in investment research and customer service signal a regulatory green light for tech-enabled strategies—provided they do not distort market fairness or amplify systemic risk.

Imperatives for Fund Managers and Institutional Investors

• Private fund managers should immediately benchmark their governance, disclosure and conflict-of-interest controls against the new State Council guidelines and the forthcoming three-year action plan; those with non-compliant practices such as shell holding structures or undisclosed related-party transactions must execute remediation roadmaps.
• Public fund companies need to accelerate the shift to a buyer-broker advisory model and strengthen in-house equity research capabilities, as the regulatory focus on long-term returns will intensify scrutiny on underperformance and product homogenization.
• Venture capital and private equity firms should begin structuring new vehicles explicitly targeting government and pension capital mandates, because the likely relaxation of state-capital assessment rules will reward managers that demonstrate co-investment discipline and post-investment operational support.
• Investors in public funds should monitor the shift in product design toward low-volatility, income-oriented and absolute-return funds, which are being actively promoted to bridge the gap between household expectations and the equity market’s risk profile.
• Technology and operations leaders across the industry must start piloting AI applications in research, trading and compliance monitoring, as the CSRC has explicitly endorsed such innovations under the condition of robust risk controls, giving an early-mover advantage to compliant adopters.