China's mutual fund industry may not be welcoming of foreign fund companies, according to a column in Financial Times by Mark Konyn, chief executive of Allianz Dresdner Asset Management in Hong Kong.

Konyn says that the lackluster performance of China's A-share market last year has led to a decline in investor demand and poses a hindrance to mutual fund growth. He also says that mutual fund launches are seen as a short-term trading opportunity, making them less appealing to investors.

New entrants have borne the brunt of the slow market. Merrill Lynch, for instance, which holds a 16.5% stake in a joint venture with Bank of China International, launched its maiden fund in December but attracted less than half the amount it expected, Konyn says.

Rising competition from local commercial banks is also proving to be roadblock for global financial giants. "One of the implications is that [local] banks are likely to offer in-house products rather than a selection of other people's funds," Konyn writes.

But he adds that this switch from independent to in-house fund managers is unlikely to faze China's investors. That's because local banks are expected to team up with foreign partners. They already distribute funds of Sino-foreign joint ventures--something that the average Chinese investor holds in high regard.

China's financial regulators are also likely to embrace local banks' link-ups with foreign firms, Konyn says. Their main objective in promoting such tie-ups would be to improve governance and professional standards of the local fund management industry.

While this is reason enough for foreign firms to hook up with local banks, Konyn cautions that global managers are likely to face issues such as margin preservation and management control.

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