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"We respect CSRC's warning of better risk management on fund raising. As custodians, we will be strict with selecting fund companies as our clients," Ding said. "Only those companies that have good performance and strong ability to control risks can be our customers."

According to First State Cinda's Huang, medium-sized and small fund management companies are encountering a tough time as the fund companies are competing for limited custodian bank resources.

"The finding of a custodian is very strenuous work, and since banks have the bargaining power, sometimes we have to increase payments to the bank," Huang said.

Yet, the recently raised mutual funds have accounted for only a small fraction of new money entering the market, and the cooling measure is not likely to have a major impact on market sentiment.

The benchmark Shanghai stock index yesterday closed with almost no change after rising to within a whisker of its all-time high.

"The cooling down of fund raising activities will surely have an influence on the market, but it is hard to say how big it will be," said Zhang Qi, an analyst with Haitong Securities.

(China Daily 12/14/2006 page11)

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