Executives at mutual fund companies in China believe the countryÆs Securities Regulatory Commission (CSRC) has introduced an implicit moratorium on the launch of new mutual funds over fears that the market may be overheating.

It is a particular concern for new Sino-foreign joint ventures that are keen to introduce their first product. One person working for an international fund house with a new JV says that, after a long approval process, now the business is stymied from getting off the ground because it's fund application is in regulatory limbo.

The A-share market's strong run in 2006 saw huge activity in new equity product launches, referred to locally as fund IPOs as they are listed on exchanges. The euphoria culminated with a Harvest Fund Management product that raised RMB40 billion ($5 billion) in a single day in December.

That deal, the culmination of several other big fund IPOs in late 2006, capped the introduction of 12 new equity products in the fourth quarter. Given the under-developed state of China's capital markets, there are now many fund houses each running series of very similar products. The industry topped $100 billion last year.

ôThe CSRC is having a harder look at the marketplace and asking whether it is necessary for companies to have this many products," suggests Peter Alexander, principal at Z-Ben Advisors, a consultancy in Shanghai. "It wants to see what will happen if companies stop launching two or three products each quarter.ö

One function of a pause by the CSRC may be to allow the huge amounts of newly invested money to find stocks to buy. Mutual funds now comprise a big chunk of A-share market liquidity, and it typically requires several months for a new fund to fully invest. But the sheer size of the fourth quarter takings means the industry may hold high cash levels for longer.

Fund executives say that the CSRC is likely to give the green light to new products that don't have an equities tilt, but distributors aren't interested in selling money-market or bonde funds. Given the lack of alternatives or ability to short or use derivatives, fund companies are struggling to come up with innovative products that can be passed in this environment.