Equity funds in China turned in a slightly better performance last month, posting an average return of 2.04% compared with a steep average loss of 18.46% in June, according to Lipper data. However, the fundsÆ performance for the first seven months of 2008 is still a disappointing average loss of 42.22%.

Qualified domestic institutional investor (QDII) funds underperformed in July with an average decline of 1.34%, bringing the average loss for the first seven months of this year to 21.72%. The QDII program allows institutional investors to move funds overseas as part of the liberalisation of China's capital account.

Qualified foreign institutional investor (QFII) funds rose slightly in July, with an average return of 0.74%. Actively managed QFII funds outperformed passively managed funds and had lower volatility.

The total net assets of the 19 QFII funds tracked by Lipper last month slid to $7.374 billion in July from $6.619 billion in June. Belgian financial services provider KBC Group and Australia's Platinum Investment have been granted QFII licenses by the China Securities Regulatory Commission to invest in ChinaÆs capital markets, according to Lipper.

China launched the QFII programme in mid-2003 to allow approved foreign institutions to trade A-shares and bonds on the Shanghai and Shenzhen exchanges. The programme was part of the governmentÆs efforts to open ChinaÆs capital market and ease controls on the capital account, under which the yuan isnÆt fully convertible.

Economic growth and inflation pressures continue to hound the markets in China, and extreme volatility is expected to remain in the coming months.

China's gross domestic product slowed to 10.1% in the second quarter from 10.6% in the first quarter because of a softening in China's exports and tighter credit policies. Consumer prices rose 7.1% in June, but that marked an easing from the nearly 12-year high of 8.7% in February.

Xav Feng, head of research for Taiwan and China, says that sliding oil and commodity prices are expected to help ease ChinaÆs inflation in the second half of the year.

ôChinaÆs domestic economy is suffering from unstable global factors, increasing challenges, and hardships,ö Xav says. ôChina's top priorities for macroeconomic control in the second half have become maintaining stable-but-rapid economic growth and controlling excessive rises in prices. This is signalling that ChinaÆs government has become more cautious on macroeconomic controls, and monetary policy shouldnÆt be so tight in the future.ö

Average performance of fund groups in China in July:

Equity China +2.04%
Mixed Asset CNY Aggressive +1.68%
Mixed Asset CNY Flexible +1.38%
Mixed Asset Other Conservative +0.38%
Bond CNY +0.35%
Guaranteed +0.31%
Money Market CNY +0.25%
Target Maturity -0.05%
Mixed Asset CNY Balanced -0.06%

Top performing QFII funds in July:

ING China A Share Fund P Class +3.91%a
PCA China Dragon A Share Equity A-1 Class C +3.80%
JF China Pioneer A-Share +2.76%
Hang Seng China A-Share Focus +2.44%
Hang Seng China A-Share Focus A1 +1.69%
APS China A Share +1.43%
ABN AMRO China A Share Fund =0.02%
W.I.S.E. - CSI 300 China Tracker -0.48%
Nikko China A Share Fund 2 -1.12%
Nikko AM China A Stock Fund -1.14%
Morgan Stanley China A Share Fund Inc -1.68%
iShares FTSE/Xinhua A50 China Tracker -2.70%