PRC post office may sell mutual funds

China Merchants is in negotiations with the postal system to sell funds.

China Post, the vast postal network in China, is in discussions with China Merchants Fund Management in Shenzhen about the possibility of using the postal organization as a platform for selling mutual funds, accorrding to rival fund houses. CMFM officials declined to comment.

One rival executive says CMFM hopes to sell its funds via China Post as early as summer. It was not clear from discussions with Chinese fund houses whether other firms were also pitching the idea to China Post.

Although China's mutual fund industry is mushrooming, with now nearly 50 licensed providers and $20 billion of assets under management, it is endangered by a bottleneck in distribution. Around 90% of all sales are made via the eight public and private banks allowed to act as fund custodians. Other channels such as securities houses remain unpromising or, like insurance companies, aren't yet allowed to sell funds, while building a direct sales force is too expensive for such a big country.

Given that, and the slow pace of registering new funds with the China Securities Regulatory Commission, fund houses are struggling to get products on shelves, and many are unprofitable as a result. So any new channel will be welcome, both to domestic players as well as joint ventures such as CMFM, which is owned by China Merchants Securities and ING Investment Management.

China Post's main allure is its huge branch network, which dwarfs that of even the biggest state-owned banks such as ICBC or China Construction Bank. It also reaches rural areas where the banks have little presence. On the downside, this rural market is very poor and has no understanding of mutual funds. Nonetheless, China Post could be an appropriate channel to sell, say, money market funds. CMFM launched one of the country's first money market funds last year, along with Boshi and Huaan Fund Management.

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