China mutual fund closures head for eight-year high as investor demand drops

China's mutual funds are closing at the fastest rate in eight years, as a combination of poor stock market returns, steady investor withdrawals, and strict regulatory rules force hundreds of underperforming portfolios out of business.

So far in 2026, around 256 public funds have liquidated, with another 46 warning investors that they are on the brink of closure, according to compiled market data. This puts the industry on track to see more than 300 liquidations by the end of the year—the highest total since the sweeping regulatory cleanup of 2018.

The closures come despite a long-running push by Beijing to steer household savings into equities. That campaign led to an explosion of new products, but as market gains sputtered, investor enthusiasm dried up. The market is now heavily oversaturated, with 14,585 public funds active at the end of August, up more than 10 per cent from last year.

The 50 million yuan cliff

Under Chinese securities regulations, fund managers must submit liquidation or restructuring proposals to regulators if a fund's net assets remain below 50 million yuan for 60 consecutive trading days.

"Products that are too small, have too few investors, or consistently lag their benchmarks are costly to maintain and increasingly difficult to justify," said Chen Zunde, a fund manager at Guangdong Fund Investment Co. He added that recent market pullbacks have severely dampened the appetite for risk.

The active stock fund index run by China Securities Index Co. tells the story: its five-year annualised return stands at negative 0.8 per cent, even with a modest 3.6 per cent recovery this year. The benchmark CSI 300 index has slipped about 6 per cent in 2026, while the tech-focused Star 50 index has seen its gains trimmed to about 14 per cent.

Even funds with strong performance are closing. The Great Wall SSE Science and Technology Innovation Board Composite Index Fund, which focused on semiconductors, shut down recently despite delivering a 23 per cent gain since its launch just over a year ago.

Analysts point to a structural issue with how retail investors behave. "Many retail investors don’t hold mutual funds for the long term," said Zhang Jingzhong, an analyst at FOF99 Fund Research Institute. "They tend to buy after a fund has already performed well, rather than stay invested through cycles, hence hurting their returns."

The 2023 stimulus hangover

A significant driver of this year's liquidations is a class of "sponsor-backed" funds launched during a 2023 government-led effort to restore confidence in the stock market. At the time, regulators allowed these funds to launch without meeting the standard 200 million yuan minimum asset threshold.

However, those rules came with a catch: the funds had to reach at least 50 million yuan in assets within three years or face automatic termination.

Now, three years later, many have failed to hit that target. Wang Shan, an analyst at Morningstar’s fund research centre in China, estimated that this rule alone is driving nearly 100 liquidations this year.

Wang argues that the wave of closures, while painful, is necessary. "The industry needs to shift away from relying on new launches and blockbuster products to drive growth," she said, calling the exit of inefficient products a healthy transition toward "quality over scale."