Alarm bells are going off in the Chinese mutual fund industry, which posted a collective $489 million net loss in the second half of 2004, Reuters reports. China's nine-month stock slump, fierce competition and a lack of derivatives to hedge investments contributed to a gloomy outlook for two-thirds of the country's 153 mutual funds.

With investment giants like Merrill Lynch & Co. pouring money into the Chinese economy, which grew by 9.5% last year, the country's $40 billion mutual funds sector has been registering double-digit growth rates in the past few years as Chinese seek higher returns on increasing income.

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