Janice Dai is a senior executive at Harvest Fund Management Co. Ltd., one of China's top fund management companies, managing fixed income market investments across the country. She also leads her company's overall institutional investments. Last week she agreed to talk about her company as well as comment on China's booming financial industry, in the wake of overseas investment bankers predicting tremendous returns on the Chinese mainland over the next few years.

Beijing Review: Ms. Dai, could you talk about what kind of customer base Harvest caters to?

Janice Dai: We have three types of clients: individuals, institutions and government sectors, i.e. National Social Securities Funds. Our largest sector is individuals. Chinese people started independently investing in the stock market beginning in 1991. Harvest Fund Management Co. was founded in March 1999 by its founding shareholders--China Credit Trust Co. and Li Xin Investment Co. Today we are China's premier fund management firm.

How do people learn about your company? Why would someone invest with your company rather than other firms?

Well, we are frontrunners--we were among the first 10 firms to acquire a government license and among the first three firms approved to manage National Social Security Funds, Enterprises Annuities and QDII (qualified domestic institutional investor) Funds. With between 60 and 70 asset management firms in China right now, Harvest stands out for competence and attention to corporate governance. We focus on risk management and we look toward long-term investments. Our firm is relatively conservative compared to our competitors. We're considered safe and stable. I think most people rank us as cautious and not overly aggressive. This outlook suits the Chinese population and leading Chinese institutional investors.

What are your thoughts on the numbers of ordinary people getting into the fund game? With current market volatility, do you think these amateur investors really know what they're getting into? Does this influx of what could be considered fickle investors help or hurt the market?

Given that the current figure of total fund investors accounts for 2 percent of the whole population, I believe the trend for people entering into fund investment will keep up. Some new investors might not really know what risks they expose. However, for those fund investors who have directly invested in stocks before, they should have realized the risk return profiles more clearly. For sure, the more the later type of investors, the less there are market volatilities. Unfortunately, we don't have in-depth research on the fund investor structure right now.

How does the firm conduct business?

Chinese people are used to going to banks to transact financial business. Since 2004 our distribution channels have been the four largest state-owned commercial banks. We still do about 77 percent of our business through them; it's very convenient. Customers can ask the bank to transfer money from their accounts or they can deposit cash directly into their Harvest account via these banks. You can also trade online via our websites; our fees are 0.6 percent.

The Chinese people are known to be great savers. Do you think this habit is changing?

Yes. China has the highest saving rate in the world but people today have realized that saving is not enough. Investors of all ages are getting smarter. With inflation, if you put your money in the bank you will get a negative return due to the low interest rates banks offer. Inflation is continuing. In the last decade all sorts of new financial services have appeared and are growing fast. Our individual client base ranges from 5000 yuan individual investors to 100 million yuan investors.

Tell me about the procedures you use to choose stocks and about the funds you offer.

We choose stocks first by evaluating their rough criteria. Then we look at universal criteria. Next, we apply finer screens, and finally we go for individual specific names. For mutual funds we look at the market rates, liquidity, the gross rate and the earning forecast. Currently there are about 300 stocks in Harvest's pool.

Can you comment on the current QDII market?

The QDII market return is not good right now. This is mainly because yuan is appreciating against the U.S. dollar. We offer QDII products but everyone is concerned about the future course of yuan. The average appreciation rate has been 6 percent but it has gone as high as 10 percent at one point and may go higher still. With today's global markets the behavior of foreign economies can have a serious impact on China. Perhaps that's why Premier Wen has been very cautious about the Hong Kong stock express. The Hong Kong stocks have rather high prices, before investing in something pricey we feel it is very important that the Chinese client understands exactly what he or she is getting into.

Premier Wen has recently called for better financial education of the Chinese people. How does your company educate its clients regarding funds?

We do a lot of different things. We educate our own employees. We have an active exchange of banking experts with our foreign partner--Deutsche Asset Management. We send people to New York to learn and gather information and they send people here. Harvest also holds many activities for our employees to promote an educated, loyal and happy team. For our clients we hold conferences at the distribution banks, plus the banks train their employees using our guidelines, and we do some intelligent advertising as well.

Our object is not simply to sell mutual funds but to advise people about their financial rights and to educate them about the different products available on the market, as well as the risks involved. We look at what people want to do with their money: For the more cautious, for example, the money market will remain okay if the market fluctuates. Others are interested in long-term investments with a stable return. We want to establish long-term relationships with our clients. I myself spend a great deal of time watching accounts, listening to companies pitch to us, attending road shows hosted by corporations issuing securities, and visiting CEOs. I often ask them questions to see how they view their competitors--this tells me a lot about them and their own business.

When did you start the joint venture with Deutsche Asset Management?

On March 9, 2005 we agreed to set up a joint venture, the largest joint venture fund management company in China. Our official partnership began when they purchased 19.5 percent of shares in Harvest after signing the agreement. Currently it's pending whether they will purchase an additional 33 percent or not. Right now we have an asset expert and lawyer from Deutsche with us for six months. We send our people regularly to New York. Our exchange is ongoing.

This sounds like a great marriage.

Indeed. Their concepts and financial planning strategies are very similar to ours and they also have focused on what we like to call a "compliance culture" that is taking an integrated and global view toward fund management, risk management, country regulations, and enhancing opportunities for our Chinese clients. Harvest's management, philosophy and investment details are based on a global perspective because that's the kind of world we live in today.

(Interview by VALERIE SARTOR)