China Mf Project

8/11/2019 China Mf Project

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A China Mutual Fund Project

Wei G. SongTian Yi Security Co., Ltd.

AbstractWith China joined the WTO, its economy will embrace the world with unprecedented fresh

attitude and manner, it is the historical moment for seeking concrete cooperation between Chinasecurities houses and foreign financial entities. Besides the investment bank, the mutual fund

industry is one of the hot spots for joint venture or other cooperation manifestation. Through

cooperation, management experience, client base, market resource (distribution channel, public

relationship), investment expertise, product design technology and all critical enterprise resource

can be shared between partners. Information, monetary and human resource will be exchanged and

reinforced between both parties; hence attractive rate of return and healthy growth prospective can

be secured for the company and all its investors.

This paper can be downloaded from the

Social Science Research Network Electronic Paper Collection:

http://papers.ssrn.com/abstract=292799


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1. Sustainable growth of China Economic

A. The Growth of China economic in the past 20 years catches the eye of the world

In the past 20 years, China National economic measured by the Gross

Domestic Products has experienced four folds growth together with

national income.

China successfully dodged the Asia Financial crisis, foreign trade

volume continue to soar, it reaches USD 475 billion in year 2000, the

export volume at least take 23% of GDP. China now is the 9thbiggest

export economic in the world.

The quantity as well as the quality of foreign investment in China

has been continually improved. The cumulative foreign investment in

China reaches USD 370 billion; four of five international foreign direct

investments (exclude Japan) have flown to China mainland. According to

a recent investment preference survey with CEO of world top 1000

corporations measured by sales done by a international prestigious

consulting company, China has already taken the place of England, become

the second most preferred country for foreign direct investment only

after USA.

Traditional industry and new economic industry boomed together, china

now became the world giant of manufacturing industry. The output of

Semi-conduct, software development and other informational related

industry is soaring, china now is the third largest producer for

semi-conductor industry, and it still maintains the competitive

advantage in such labor-intensive industry as toys, fabric, garment and

shoe manufacturing. Furthermore, since the huge pool of cheap


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labor and land in underdeveloped inner rural areas, it will keep the

world competitiveness for a considerable amount of time, also as the

Per cap GDP approaches and exceeds USD 700, the domestic market will

take the place of foreign market for certain exported items to keep the

machine running in full capacity and the economy growing in sustainable

momentum.

The domestic currency, RMB, remains relatively stable, foreign

reserve passes the 200 USD billion levels. China now ranks the second

in the world in foreign currency reserve.

The city resident and farmers income level continue to grow at a

stable rate corresponds with their personal savings in the bank and

other credit association.

B. The sustainable substantial growth is the prominent feature of China economic

The internal elements support the growth is:

a. The domestic consumption and investment will grow with the continue

expansion of city and urbanization of rural area.

b. Property ownership structure reconstruction manifested by the

privatization of former public sector and the booming of private

enterprise driven by the industrious tradition of China people.

c. Industry reconstruction, the so called new economic will

transformed the old economic with the costless cross border

transfer of world class technology .The popularity of internet

usage in China and traditional preference for high education of

Chinese culture will combined to give a new definition for new

economic in China. For example, the online trading of securities

is predicted to grow at a rate comparable to Korea given the right

time and the introduction of healthy credit system.


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USD 6700. In one words, China will join the middle-income country rank

after it accomplishes its economic reconstruction in eye catching pace,

and its very possible that it will become the world second strongest

economic 20 years later.


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2. The challenges and historical opportunity

in China capital market

The opportunity as well as the challenge co-existed in todays china

capital market.

A. The Challenges:

(1) Lack of healthy individual as well as collective credit system in

china.There is no fully fledged Social security number system

attached to each resident and fully inter-connected with the bank

and securities market which can prevent the fraud and keep track of

each financial transaction record. And those recorded data is the

foundation for credit watching, statistics analysis and other

critical function provided by the supervision agency,

self-regulatory organization and individual financial firms.

Fortunately, China government has already begun to introduce such

ID system to reform its old one in some major cities like shanghai.

(2) The quality of listed companies: the public ownership still

dominated the corporate board since the government is always happen

to be the biggest shareholder of listed companies, then the

transparency and fairness of the management have often be threatened.

Information asymmetry is inevitable, Suspicious asset transfer

frequently takes place between the holding company and its listed

subsidiary. The book will be cooked since the corroboration with

accountant and public audit often will be rewarded without incurring

proportional risk. Small individual


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Investors voice cannot be heard since seldom listed companies will

have strong incentive to put in place a strong investor relationship

program. Hence a vicious cycle is accomplished. The link is hard to

crack, nevertheless, this year CSRC has initiated several major

investigations in several high profile cases to clear up the market,

and several laws are also under the parliament approval procedure.

A delegation comprised of major china securities houses was led by

China Securities Company Association to visit Korean this October to

study the lesson learned by Korea through its IMF rescue program after

financial crisis. This year also see the burgling sign of private

sector listing, several companies wholly owned by private individual

had IPO this year, and in Shanghai alone, at least 14 foreign joint

ventures will plan to go to market next year.

(3) Lack of systematic coordinated securities Law and rule to regulate

the market and protect the investor.Previous regulation often is

outdated isolated and served as expedient contingency measure for

rising situation. So some of them often contradicted with each other

as the legal environment progress. Some regulation is opaque and

simply can not be enforced. For instance, the practice of trading

on inside information which will deeply shakes vital investor

confidence and demoralize individual investors, the law explicitly

prohibit this kind of activity, but the definition of inside

information is not well spelled out, and no standing supervision and

punishment mechanism is placed to expose and punish the illegal

activities. Now, the CSRC is strongly supporting the notion of

introduction a well-coordinated legal framework both in Investment

Company and other issues.

(4) High volatility in the A, B shares. The volatility cannot be well


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Captured by some math models since the wide spread price manipulation.

For instance, the beta coefficient used in the single index model of

CAPM is defined as the ratio of the individual securitys covariance

of return with the market to the variance of the market, in theory we

can use empirical study to calculate the expected return of the

individual security, Also security risk can be broken down into

systematic risk and specific risk, but since the price of the

individual security has been contaminated by force beyond the market,

so garbage in, garbage out, the result sometimes is misleading. The

data integrity problem is the major problem in emerging market not only

in China. If we can add other dimensional component into the risk

definition of China stock market, the so-called political risk should

be addressed before some prediction math model can be used. The fact

of high volatility in China stock market has been used by some scholar

to argue against the opening up of A shares to international investors

hot money, according this theory, portfolio managers might turn at

the first sign of trouble in a developing economy, and thereby further

disrupt its capital market during a period of financial stress.

Although such actions by mutual fund investors have not occurred in

US financial markets, some have suggested the high volatility of

emerging markets, coupled with the newness of their capital markets,

make them more susceptible to destabilizing investment inflows

relative to US capital market. But the fact is that, indeed, the normal

practice for money manager is to go opposite way with small investors.

They quite frequently bought shares at times when share price were

falling and sold in rising market, without a doubt, the hit and run

small investors in China has a lot to learn and benefit from the long

term investment objective of emerging market fund.

a) Besides the volatility issue typical of emerging market, the


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liquidity of China securities maybe more limited than the one in

developed markets, which means the liquidation price will be

compromised; brokerage commission, custodial fees and other

administrative fees are generally higher for foreign investments.

In addition, withholding tax would reduce the amount of income and

capital gains available to distribute to fund shareholders. Other

risks include the following: possible delays in the settlement of

transaction or in the notification of income, and even very remote

chance, the possible seizure, expropriation or nationalization of

the company. The tax related to the securities transaction in China

A B shares is so called transaction stamp tax, there is no capital

gain tax, the china government simply combined the income tax with

capital gain tax to prevent the tax evasion, by this November, the

stamp tax has been lowered from 0.3% to 0.2%, the 0.35% transaction

commission being levied on both side remained the same, even though

it will be expected to cut further. The market competition has

already force some securities brokerage use commission kickback

to lure the clients.

B. The opportunities resulting from the fundamental structure

reform of China stock market after WTO

The fundamental reconstruction of China stock market has been

manifested as following:

(1). from the perspective of the structure components and quality of

the listed companies in the market

a. Government begins to encourage the qualified private owned firm

to go to market.Differed from the closed management culture and


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reclusive ownership structure deeply imbedded in those family

businesses in Hong Kong, Taiwan and other Asia Counties, private

businesses in Mainland China are more likely to adopt the western

style corporate governance structure due to the short history

of growth, they are more adaptable to changes.

b. Foreign Joint venture goes public in China.Actually some big

international companies have already became major shareholder of lots

of the listed stated owned firms through stock purchase agreement with

china companies, especially in the airline industry, in the car

manufacturing industry, and in the transportation infrastructure

sector. Even in the historically strictly controlled financial service

sector, international capital has already began to chase their right

take over target, for instance, The International Finance Corporation

of IMF has already participated in the loan or equity structure of Min

Sheng Bank, Bank of Shanghai, Nanjing Commercial bank, New China life

insurance. Some domestic insurance companies also have attracted

substantial amount of foreign interest. Among above-mentioned

companies, some of them are listed firms; some of them are planning

their IPO. This year, only in Shanghai, there are at least one dozen

of foreign joint venture are under the IPO application procedure

initiated by local investment bank. The CSRC have already published

its policy directive in this Month to officially allow foreign firms

go public in China. As china capital market moves forward with better

regulation based on the force of market instead of arbitrary quota

system of planned economic, with better service provided by domestic

or partial foreign owned investment bank, more and more qualified

Foreign JV or wholly foreign owned firm will be able to tap the china

capital market.

Through the introduction of more and more private sector economic


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into China stock market, the ownership characteristic of listed

companies will be transformed from the public dominant to private

control. The market liquidity, depth and breadth will be enhanced

through the improvement of quality of listed companies. Good examples

of corporate governance structure will be set by those so-called new

firms to attract more capital inflow. Information asymmetry problem

will be addressed by better investor relationship program provided by

those new firms, dividend will be paid with due respect for the

individual investors, Investor confidence thus will be reassured to

encourage long term investment horizon. The resource allocation

function of capital market will be implemented with more efficiency

and effectiveness.

(2) From the perspective of market regulation environment

With the progressive merge of China market with world market,

inevitably, certain universal market rule of game will be adapted and

better observed to ensure a fair and just play for both buyer side and

seller side. These rules cover the independence and credit worthy of

public accountant and Auditor, the timely and accurate disclosure of

market information, prevention of fraud and market manipulation by

insider, the protection of small investors etc. A better and open

regulation environment certainly will improve the market efficiency

and cut the transaction cost, thus bring economic welfare as well as

social well being to the society. Furthermore, from the perspective

of certain investment policy restriction imposed by China government,

such as investment ceiling on certain industries, restrictive control

of currency exchange, prohibitive direct access by foreign investors

to A shares, all these strong control will be expected to relaxed

eventually to allow the market to take the free steer -wheel. With the


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media publicity of artificially inflated sales figures by some shell

companies this year, by the end of this November, CSRC published . In the accounting sector,

targeting at some wide spread malpractice, it covers the detail methods

for disclosure about revenues by business segment and by geographic

locations, revenue recognition method under different scenario, Loan

guarantee and Loan between affiliated companies, loan loss allowance

etc.

(3) From the perspective of institution investors in the market

Emerging market fund:

If we analyze the country preference of the emerging market fund by

comparing their individual country investment weight with their market

cap, we will find out that even though Mainland China did very well

in FDI, but it simply cannot catch the eye of these mutual fund managers.

Furthermore, even they happen to invest in mainland companies, most

of the emerging market fund only allocated small proportion in red chip,

H shares, Shanghai B shares and Shenzhen B shares combined usually take

less than 10% of the weight (this 10% is for mainland China fund only

play china, the figure will go much less for Asia Pacific regional fund).

But all these pessimism and

Mindset for downplaying China will be alleviated through the upgrading

of the Market system in China in near future. China stock market should

play hard to transform itself to earn the same level of respect and

popularity as received by FDI and it is certainly not as hard and as

time consuming we usually assume to be. Insurance Company will be

allowed to invest bigger proportion of its assets in securities to


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payoff the promised return for their Variable annuity or other

investment-related insurance policy. The employee investment program

similar to US 401k will likely be introduced to solve the huge social

welfare fund deficit. More money from the social protection fund and

housing public pooling fund will be allowed to participate in the stock

market through the bidding system to select best money manager instead

of sitting idle in a sleepy account or being swindled by some corrupted

manager. A regulation regarding to Asset Management business is in the

brewing stage which will legalize the estimated total 700 billion RMB

so called private collective fund in China (it is almost 40% of

marketable issues in China, the sheer volume speaks the great potential

for fund business in China)

(4) From the perspective of retail investor in the market

The market cap of china stock market is 4.8 trillion by the end of

2000; it is 57% of 2000 GDP. The fund asset is 84.7 billion, 1% of GDP,

and 10.3% of marketable share market cap. At the same time, domestic

resident savings in the bank have already surpassed 7 trillion, which

mean the retail side of the business still is a virgin land. The

official figure of retail account is 60 million, but the number has

to be deeply discounted due to three reasons, first, duplication

account is not discounted by CSRC, second, around half

of the 60 million are simply fake, third, large amount of them simply

opened for IPO and not active at all. So adjusting for duplicate,

inactive and fraudulent share accounts, one might estimate that China

has around 6 million to 9 million active individual investors, it is

only 0.5% of the total population,, and only 3 % of Chinas

approximately 200 million urbanities .The investors confidence has


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been shattered by negative media exposure of book cooking and mutual

fund market corroboration scandal this year. Even the short term

results of market crackdowns is painful for many underprivileged small

investors, but the long term perspective still remain pretty rosy with

the overall improvement of market system and fundamental healthy of

china economic.

(5) From the perspective of investment instruments in the market

Among them, more open end funds will be introduced into the market,

corporate bond growth will set foot in China market to compete with

the IPO, rights offering and secondary offering, the stock index future,

stock option, ABS (home mortgage, car loan mortgage), credit

derivative, foreign exchange future and FX option as well as interest

rate future and option, SWAP and other derivative products will be

expected to show up in the market with unprecedented pace.

(6) From the perspective of CSRC and China Securities Company

Association

As more and more oversea returned Chinese joined the CSRC and other

regulation making bodies and self regulation agency, more and more

new ideas and concepts will be introduced to help China to establish

the foundation of the market---- the legal framework

C. The Policy Directive of foreign cooperation in China capital

market

The opening up of china capital market is the inevitable step China

should take to continue to develop its economic; China government

cannot afford to keep the door closed for its capital market.


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The progressive opening up of China market by sector is expected in

the foreseeable future. Financial service (commercial bank, insurance,

asset management, investment bank, securities brokerage),

Telecommunication, foreign trade, retail and whole-sale (distribution,

logistic), tourist, Accounting, Legal service, all these previously

strictly controlled industries will be readily available for foreign

investment.

The investment measure will be broadened from FDI to more efficient

and costless way of share participation, merger and acquisition. A new

wave of industry reconstruction will be expected in certain areas

through cross border M&A to achieve the better international resource

allocation. Foreign participation in state-owned enterprise would

help the establishment of fair corporate governance structure to set

a example for the rest economic. A Temporal Provision for State owned

Enterprise to reorganize equity structure Utilizing Foreign

investment has already been promulgated by China Economic and Trade

committee this year, it is an clear indication of the determination

of china government to push ahead its SOE privatization program with

more boldly manner.

The policy support for Non-public sector economic in the finance

service industry and telecommunication industry, the limitation for

private sector will be progressively lifted to allow the free market

to test the stronger and the fitter. The private property ownership

will be protected by law, thus can entrench the investors confidence.

Foreign capital investments in china private sector are expected to

become another hot spot in world financial world followed by many SOE

listings in the oversea market in the early and middle 90s.


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3. The horizon for China securities market

development

From the macro economic point of view, this years national GDP will

surpass 9 trillion, Foreign reserve will exceed 200 billion US dollar,

resident savings will break the 7 trillion level (only 10% has been

invested in the stock market), The savings in the banks is 14 trillion,

among them, 3.1 trillion is still sitting idle in the bank. A the same

time, the market capital in mainland china stock market reached the

level of 4.8 trillion by the end of 2000 (it is the 57% of GDP, but among

the 4.8 trillion, only 1/3 of them are marketable liquid). According

to the prediction of China marketable shares will meet 16.5% % of GDP

by the end of this year, and if the relevant market penetration ratio

and other ratio of developed market are applicable here in China, with

the assumption that we have well-functioned healthy capital market

system and legal system in place (investor protection scheme,

information disclosure scheme, independent credit worthy CPA and audit

system), then our market cap will expend 10 folds at present economic

level (even we assume that the state owned shares remain the same

proportion level and Foreign investment in B shares remain the same

level, or we assume the A share still close to the Foreign investors).

Take mutual fund for instance, this Octobers figure shows that the

market cap for China fund industry is 74.5 Billion, at the same time,

the asset value of China insurance companies totaled 400 billion, then

there is 61.6 billion of insurance companys asset could be invested

in the funds based on the official investment hurdle ratio of 15% of

insurance companys asset, but if we take the insurance companys


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investment ratio in developed market, the ratio can go as high as 70%.

From these rough estimates, we can see the huge potential in China

capital market.

In the primary market, in order to improve private firms access to

public equity, listing requirement will be expected to relax after the

abolishment of quota system on listing by

CSRC last march, also the expected establishment of the second Trading

board in next would have a profound effect on private equity markets

by enhancing the exit mechanism for those seed capital providers.

Proposed listing rules for the second trading board would make access

easier fir younger firms because companies would not have to demonstrate

a history of profitability to be listed, and the capital required to

obtain a listing is expected to drop from RMB 30 million to 20 million.

Because of above-mentioned situation, there are lots of China

companies and foreign companies have alreadyteamed up to tap the market,

they are

Bnp Paribas Asset Management

Shroder Asset Management

Fortis Asset Management

HSBC

Detutsche Asset Management

Intesco Asset Management

J.P.Morgan Fleming

UBS Asset Management

----ABN AMRO


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The list should be much longer.

The major concessions China has made in financial service industry

for joining the WTO.

Trading measure: Foreign entity can trade B shares without domestic

intermediate, foreign entity can apply and obtain special member seat

in the china stock exchange, after three years, foreign entity can trade

B shares, H shares, government bond, corporate bond and other new

instrument.

Primary market: first year foreign ownership can not exceed 33.33%,

after three years can reach 49%, the business can cover IPO of A, B,

H shares and government, corporate bond.

Asset management: first year foreign ownership can not exceed 33.33%,

after three years can reach 49%, business scope cover the relevant

operation of asset management.

Consulting and corporate advisory business: Credit inquiry, credit

rating and analysis, securities analysis, company valuation, M& A, MBO,

LBO and other corporate advisory service.

Finance informational provider: Financial data vendor, credit rating

entity, financial data analysis service provider like Lipper or other

companies.


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4. The Market potential for China investment

company industry

A. The assets of China fund

The assets of US mutual fund has reached 6.965 trillion US dollar by

the end of 2000, in comparison, China fund assets only 74.5 billion RMB,

the size difference is 800 times, mutual fund is the major market

investment vehicle, the pillar for US economic development. In

comparison, Chinas fund assets only take 2% of A share market cap, 1

% of GDP. Nevertheless, this year sees three open-end funds take off

in China market, the asset for the first one---Hua An Innovation Fund

---is 5 billion RMB, the Southern Conservative Growth Fund is 3.5

billion RMB, Hua Xia Growth Fund is just available to public 2 days ago.

The next year will see at least dozens of new fund come shore.

B. The popularity comparison of mutual fund between US and China

In china market, the quantity of security investment accounts totaled

60 million, the 3% of national population (the actual figure will be

even lower since the larger amount of account was opened through

borrowed ID by some institution investors, and huge amount of so called

sleepy account). The account number for mutual fund investor will be

much less. In comparison, an estimated 87.9 million individuals in 50.6

million US households own the majority of the mutual fund industrys

6.965 trillion in assets, as of year end 2000, they held 5.5 trillion,

or 80% off mutual fund assets, while fiduciaries---banks and

individuals serving as trustees, guardians


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or administrators---and other institution investors held the remaining

$ 1.4 trillion, or 20%.


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5.Tianhe fund management Co., LTD Project

A. The Project background information:

Fully complied with Chinese government and CSRCs policy of

developing institutional investors, the project itself has won

unprecedented support from authority.

The excellent achievements ever made and the reputations ever earned

by project sponsors are sales points to attract future fund investors.

The products to be designed and marketed not only include stock fund,

but also bond fund and money market fund. We also plan to offer separate

account investment products for qualified institutions and /or high

net worth individuals based on their unique risk profile and investment

characteristics. The targeted separate account clients will be

insurance companies, employee pension, public social welfare fund,

housing fund, and other applicable institutional collective fund,

trust and endowment.

The sponsors of Tianhe fund management Co., ltd. had established many

branch offices in such developed areas as Shanghai, Zhejiang, Jiangsu,

Beijing, Nanjing, and Shenzhen. Furthermore, partner relationship with

China Construction Bank can help the fund reach nationwide market.

With the entrance of China into WTO, Tianhe fund management Co., ltd.

is actively exploring cooperation opportunity with a prestigious

international financial institution, and is now making exploratory

contacts with potential partners. The cooperation includes personnel

training, information sharing, technology support, product design,

security analysis, risk management, it will be a structured process,


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the set up of joint venture fund management company will conclude the

whole process.

Well-planned step-by-step process will facilitate the communication

between potential partners and assure the success in the near future.

B. Project Structure

Major Shareholders

Tianyi Securities Co., ltd., an upcoming securities company in

China, has made rapid progress in recent years.

Xinda Investment Co., ltd., an established large trust investment

company in China, has solid financial foundation and business

performance

China yintai Investment Co., ltd., a large-scale investment

company in China, well versed in China financial market.

Suzhou Securities Co.,ltd., an emerging securities company, has

been among the leaders in online transaction.

Equity structure is well balanced.

The percentage of planned equity shares: tianyi 26%, Xinda 25%,

Yintai 25%, Suzhou 24%.

As shown above, no single company or two companies will be in

control position; this equity structure together with the

introduction of independent director is designed to ensure a better

corporate governance structure.

Registered capital for the time being is RMB 105 million. Once

policy allowed, foreign capital will be introduced.

The registered corporate address will be in Shanghai.

Business will be focused

We will extensively participate in inter-bank credit market, bond


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repurchase market and stock loan market to manage the fund. Investment

strategy and investment decision will be well coordinated with the

investment objective of the fund; timely portfolio performance and

other relevant market sensitive information will be made readily

available through the placement of an investor relationship program.

Business Objective

The management will strive to achieve profession Excellency

through providing best products in the market to our clients. The

professional Excellency is defined as take full fiduciary duty, due

diligence and to is law abiding.

Corporate governance structure

Board of director will be comprised of 7 members, among them, 3 of

them will be independent directors, one director for each of four

shareholders, the selection, appointment, dismiss procedure will be

established and strictly followed. Membership of independent directors

will be given preference to outside professionals.

Management appointment

Fund managers appointment will be given preference to

experienced qualified professionals with outstanding track recordand impeccable integrity. The compensation system of developed market

will be introduced to ensure the performance.

Risk Control

As well as investment committee, a risk control committee also

will be established to review the major investment decision, a VAR

system similar to JP Morgan Risk Metric also will be implemented to

monitor the daily transaction impact in real time for better decision

making by management.


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6. Tianyi Security Co. Ltdthe major sponsor

of Tianhe Fund Management Co Ltd

A. The registered capital of Tianyi has reached RMB 1,002.06 million,

which is the biggest among all the security companies in Zhejiang

Province. Because of its sizes and good management, Tianyi receives

strong support from the government.

B. Tianyi is in the transformation process from a local security

company to a big national player, and its business is increasing very

quickly.

C. A number of listed companies and holding companies become major

share holders of Tianyi. This facilitates the corporate governance

reform of the company, and provides sufficient capital resource as

well.

D. There is a group of outstanding security analysis professionals

in Tian Yi Research Institute; The Company will continue to endeavor

to attract more talented employees. Human resource will back the

development of the company.

E. The branches of Tianyi are widely spread in Shanghai, Shenzhen,

Guangdong, Shangdong, Jiangsu, Zhejiang and other cities, thus its

business covers most prosperous areas of China.

F. Tian Yi will implement five corporate wise projects, i.e. expansion

project, innovation project, governance reform project, human

resource project and name brand project. The company has the

forward-looking management team, efficient management system and

rich enterprise culture;


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G. Taking the advantage of the open-door policy of China security

market, Tianyi has initiated a series of cooperative plans with

foreign partners, and a number of plans are already under

enforcement.

H. Based on ten years distinguished achievement, Tian Yi will

continue to pursue the spirit of high-efficiency, creative and

trustworthy, and employ the strategy of developing core competency

employing a non-conventional development mode.


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7. Cooperative Plan for Tianhe Fund Management

Company Ltd.

A. Advantages of the cooperation

1) Right time

Chinese accession to WTO brings unusual good opportunities for the

development of security and fund market. Furthermore, significant

development of fund market has become necessary for China.

2) Right place

Tianhe will be located in Shanghai, the most prosperous city of China

and a potential international finance center. Moreover, since the

sponsors of the Company are all located in prosperous areas, such as

Beijing, Shanghai, Zhejiang and Jiangsu, there is close to market

advantage.

3) Right people

The high level management of all the sponsors will fully support

Tianhe; they keep amicable relation with the governments and banks,

as well as other relative institutions; Tianhe is bound to have

reliable customer resource.

B. Strategic market positioning

1) Advanced international investment practice.

2) Advanced management and operation mode

3) Diversified fund management business: advanced investment

management; unique products offering; powerful research capability;

and well trained sales team.

4) Business in both Chinese and international market


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C. Cooperation plan

1) Preliminary communication to cultivate basic understanding of

cooperation.

a. Senior management personnel visit, undertaking preliminary

contact and communication.

b. Operation level personnel contact and further discussion,

exchanging relative information, security research papers.

2) Relative personnel training and business/technology cooperation

a. With the progress of communication, certain degree of understanding

will be reached.

b. A liaison group shall be established to facilitate further

cooperation, and to consolidate and deepen the earlier achievements.

c. Based on the work of the liaison group, a cooperation agreement

shall be made, to outline rights and duties of both sides. The

agreement shall include:

The foreign party will be expected to provide the training for the

personnel of the Chinese party on the technology of fund management,

such as asset allocation, security screening, portfolio

construction, risk award trade off, market timing, portfolio

rebalancing etc.

The foreign party shall provide all necessary technology assistance

to the Chinese party on the Companys management mechanism, fund

products designing, fund management technology, risk control,

marketing technology, and distribution channel and investors

relationship management.

The Chinese party shall, regularly or upon request of the foreign


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party, provide with the foreign party study reports on Chinese

economy and security market, and the relative market information.

The Chinese party shall provide all possible facilities to the

foreign party when they are undertaking the relevant business in

Mainland China.

The Chinese party shall give first priority to the foreign partner

for the stake ownership in the company as soon as the policy is

available.


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Contact Details:

Tianhe Fund Management Project Team

Address: 8F, No. 99 Beijing West Rd, Shanghai, PRC

Zip: 200003

Tel: (86) 21-3310-3222, 33103224

Fax: (86) 21-6319-3630, 63192854

Email: [email protected]

Contacts: Mr. Song Wei Guo, Mr. Zhu Dao Yi.

China Mf Project

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