China’s ETF market sees ‘explosive’ growth, inflows jump 5-fold in three years, Morningstar says

Chinese exchange-traded funds saw a "staggering" growth in the last five years, with inflows consistently notching new highs, according to Morningstar.

"Annual inflows to China ETFs surged almost fivefold over the past three years," Morningstar's analyst Wanda Wang said in a June report. 

According to data provided by the American financial services firm, total yearly inflows to Chinese ETFs swelled from 127.2 billion Chinese yuan ($17.49 billion) in 2021, to 387.2 billion yuan in 2022. In 2023, this figure hit 604.3 billion yuan.

By the end of last year, the total assets under management (AUM) of ETFs in China more than doubled that at the end of 2020, and hit 1.82 trillion yuan.

"Between 2018 and 2023, the annual assets under management growth rate of ETFs in China averaged a staggering 40%, and the total AUM reached record highs every year," the Morningstar report said.

The broader China A-shares market has been "tepid" since 2022, with bright spots only in certain niche industries, the financial services firm said.

"The growth of the Chinese ETF market over the past few years is explosive," Wang told CNBC.

Against this backdrop, it became challenging for actively managed funds to outperform, helping propel China's ETF market and doubling the total AUM to 2 trillion yuan in less than three years.

"The influx of investments by institutional investors have been into broad-based index-tracking ETFs, which is the most important part of the rapid inflows of ETFs in China," Wang added.

Equity products in particular gained "immense traction" in the last three years, making up an overwhelming 96% of the total 870 ETFs in China by the end of 2023. 

Inflows and annual AUM of China's equity ETFs also hit record highs, Wang wrote. Annual