China's 'gray market' over $10 billion

China's state-approved funds hold a little over $10 billion but the "gray market" may be 10 times that

By CNN's Alex Frew McMillan

SHANGHAI, China -- Unregulated stock funds in China hold up to 10 times as much money as their state-approved counterparts, a report states.

An upcoming government study pegs the total invested in China's "gray market" as high as $109 billion (900 billion yuan), according to the Financial Times.

That's triple the previous official estimate and would mean unofficial funds control half the stocks traded in China.

The full version of the People's Bank of China study, compiled by its head of nonbank financial institutions, Xia Bin, will likely be published soon.

Official licenses hard to land

Details have been circulating in the Chinese media. Bank officials confirmed them this week, the FT reports.

Unofficial fund management companies and unofficial funds are popular with both individuals and companies in China. Getting a license to operate an official stock fund in China is very difficult.

The 10 state-owned fund-management companies have a little over $10 billion (85 billion yuan) under management, according to China's stock regulator, the China Securities Regulatory Commission.

Many investors skirt the rules by getting into unofficial funds. They range from community organizations to professionally managed funds, with sophisticated trading systems.

The CSRC and the central People's Bank of China began cracking down on unauthorized stock funds in 1997 and 1998.

Since then, some of the funds have closed, according to Joe Zhang, head of China research for UBS Warburg.

"I find the numbers on the high side," he said. But he added that it is very hard to gauge the scope of the gray market.

Xia's report may give added impetus to a government push to strengthen regulation of the fund-management industry, expected to lead to the introduction of a new law later this year.