The ETF market, valued at 5.83 trillion yuan, is undergoing rapid ecological transformation. Nearly a year after the China Securities Regulatory Commission (CSRC) released the "Action Plan for Promoting High-Quality Development of Indexed Investment in the Capital Market," the domestic indexed investment sector is transitioning from "scale expansion" to "quality leap," with profound changes in market dynamics and functional positioning. In 2025, indexed investment has not only achieved breakthroughs in investor structure and underlying assets but also demonstrated strategic value in optimizing resource allocation, improving listed company quality, serving wealth management, attracting long-term capital, and stabilizing markets—marking the "inaugural year" of high-quality development for China's capital market.
**Dual Support from Institutional Guarantees and Innovation** The "Action Plan" provides both regulatory backing and innovation momentum. This year, streamlined ETF approval processes and refined index compilation rules have alleviated supply bottlenecks. ETF registration efficiency has significantly improved, with mature index-tracking ETFs now eligible for direct CSRC registration. The CSRC has also eliminated the requirement for stock exchange approval letters, implementing a fast-track registration mechanism that typically completes within five working days. Post-registration, fund managers proceed with exchange listings under relevant rules.
The "Action Plan for Promoting High-Quality Development of Public Funds" emphasizes expanding index funds aligned with national strategies. Index providers and fund managers are refining methodologies, particularly for indices targeting strategic sectors like AI, advanced manufacturing, and specialized SMEs. For instance, the Sci-Tech Innovation AI Index, launched on May 14, selects 50 stocks from the STAR Market and ChiNext, covering AI supply chains. Seven related ETFs have since been established. Other notable launches include low-altitude economy, robotics, and satellite industry ETFs.
Cost reductions remain a priority, with waived ETF listing fees and lower market-making, settlement, and index licensing costs. Innovations like ESG indices, Sci-Tech themes, and Smart Beta strategies are gaining traction, alongside new products such as credit bond ETFs and enhanced-strategy ETFs. Future prospects include multi-asset ETFs, Beijing Stock Exchange ETFs, and REITs ETFs.
**ETF as a Vehicle for Inclusive Finance** ETFs, with their risk diversification, cost efficiency, and liquidity, have become pivotal for retail investors. Products like the STAR Market 100 Enhanced and AI-themed ETFs have lowered barriers to investing in high-growth sectors. Wind data shows the ETF market grew by 2.09 trillion yuan (56%) this year to 5.83 trillion yuan, with retail participation rising steadily.
To enhance clarity, major fund houses like E Fund and GF Fund have renamed ETFs to reflect underlying indices and managers. Revised naming rules from the Shanghai and Shenzhen exchanges mandate standardized formats (e.g., "Core Investment Theme + ETF") by March 31, 2024, boosting market transparency.
**Catalyzing Asset Allocation Growth** ETF diversification now spans niche sectors, cross-border markets, and alternative assets. Narrow-based ETFs, especially thematic and sector-specific products, have surged, with 17 attracting over 10 billion yuan each. Examples include Hong Kong internet, biotech, and robotics ETFs. Traditional indices are also being refined—e.g., the CSI HK Consumption Index now excludes non-core firms, sharpening focus on pure-play consumer stocks.
Morningstar’s Sun Heng notes the shift toward "tool-based" investing, where narrowly focused ETFs offer high elasticity, aligning with investor demand and the ETF-ification of active strategies. FOF managers highlight ETFs' role in providing precise, low-cost asset allocation solutions, driving explosive growth in configurable products.
**ETFs Embrace Innovation** Indexed investment has evolved into a cornerstone of market development, channeling capital into AI, biotech, and aerospace. ETFs like those tracking AI, semiconductors, and satellites mirror "new productive forces," while major indices increasingly weight emerging industries. For example, recent adjustments to the CSI 300 and ChiNext indices have elevated exposure to innovative sectors.
Guangfa Fund’s index team underscores the dual benefit of incorporating high-growth firms—keeping indices economically relevant while steering capital toward strategic areas. In pricing dynamics, ETFs are displacing active funds as key institutional holders, particularly in emerging industries where ETF ownership rivals or exceeds that of northbound capital and mutual funds.
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