The Chinese Securities Regulatory Commission, in further steps to moderate market sentiment in ChinaÆs A-share stock markets, has begun putting quotas on the size of assets raised in new mutual-fund launches.

Yesterday saw a new funds joint venture, First State Cinda Fund Management, a Shenzhen-based JV between Cinda Asset Management, a mainland bank-asset resolution company, and AustraliaÆs First State Investments, launch its debut fund, an equities product.

This fund was given an explicit cap of RMB9 billion ($1.2 billion), the first time this has happened in China. It is a reaction to the blockbuster fund listings in the fourth quarter of 2006, capped by the off-the-charts RMB40 billion ($5.1 billion) raised by the launch of an equity fund by Harvest Fund Management in a single morning.

This marked the realisation that the A-share frenzy was getting out of control, and led to the authorities imposing an informal moratorium on new fund launches. Two fund management companies, China International Fund Management and Invesco Great Wall Fund Management, also voluntarily closed their equity funds temporarily to new subscribers.

Fund quotas will enable the CSRC to keep the funds industry stable by allowing new products, but the government has asserted its power to dictate fund sizes, not only to moderate local investorsÆ enthusiasm, but also to ensure that funds are of a manageable size relative to the capacity of local capital markets to absorb them.

Had First State Cinda raised more than RMB9 billion, the new company would have plunged into a back-office nightmare, as it would then have to return the excess amounts on pro-rata basis to all investors. Therefore it requested its distributors, including China Construction Bank, adhere to its own quotas.

As at lunchtime yesterday the firm had been able to hover near the RMB9 billion line without breeching it, according to officials at First State.

The launch shows that mainland investors still have an appetite for domestic equity funds, despite the recent volatility, including a nearly 9% sell-off on the Shanghai and Shenzhen bourses last week.

For its part, First State Cinda is keen to downplay market sentiment and highlight a longer-term perspective.

ôMarket timing is not in our dictionary,ö says Daniel Zeng Zhaoxiong, CIO in Shenzhen. ôWhat we think we are good at is picking the right company and investing in it. As we believe in the long-term value of these companies any short-term volatility will provide a good opportunity to buy.ö

Those buying opportunities will be found in a consumption play, he believes, as there will be an increase in strong consumer service businesses appearing in the A-share market.

Zeng adds: ôWe will also look closely into the companies and sectors in which China has more and more competitive advantage globally. We believe Chinese companies have much room to improve their efficiency, and this will provide growth opportunities for investors. Today. China is the fourth-largest economy in the world, but only 23 of its companies are in the top 500 globally.ö