The long-awaited Securities Investment Fund Law, the first for the industry, is likely to be passed this month, sources say.

The legislative process started in 1999 and the draft has been discussed by legislators and industrial experts many times.

The newly amended draft will be forwarded to the Standing Committee of the National People's Congress (NPC) later this month for the third review of the year.

A source said that since most of the disparities had been ironed out, it is very likely to be passed at the Standing Committee's next meeting and enacted.

"Right now, we cannot say if the draft will be passed this time, but it is very likely," said Wang Yiming, deputy director of the NPC Law Committee.

Other signs also point to an imminent approval of the law. The drafting panel recently organized a series of seminars in major cities such as Shenzhen, Shanghai and Beijing, with participants from securities regulators, other government departments and fund managers. And regulators are planning campaigns to enhance public awareness of the industry, insiders said.

An early enactment of the law would lay a solid legal basis for the nascent fund industry in China, which is in an expansion phase and embracing more foreign participants as the country's financial market opens wider.

The law is expected to clarify the liabilities and rights of the fund managers and ways to protect the interests of investors, which would plug the present loopholes and help increase the integrity of the fund businesses.

Among the two issues that have stirred debate are whether securities investment funds can apply for short-term loans from commercial banks and whether fund holders can organize general meetings themselves.

The first issue is related to the segregated regulatory system of the securities, banking and insurance industries, which prohibits the three from investing in each other. The disagreement on the second issue is mainly about the way to hold the general meeting and the minimum holdings required for the fund holders to initiate the meeting.

Experts are also calling for the establishment of a stronger compensation system for investors and more efficient civil lawsuit procedures.

Liu Junhai, a legal researcher with the Chinese Academy of Social Sciences, said the previous draft version of the fund law had not clearly defined what exactly a securities investment fund was.

"The draft which is to be reviewed this month has made some amendments and should be acceptable to all parties compared to the previous version, but it still needs a compromise to get it passed,” a source close to the matter said.

The law is expected to establish specific standards and support the healthy growth of the industry in the long term.

But the law itself cannot automatically solve the problems in the sector, said Wang Lianzhou, a renowned expert in fund business who now heads the trust and fund research institute in Renmin University of China.

(China Daily October 10, 2003)