The first major shock to China's securities market following the country's entry into the World Trade Organization will be felt by the fledgling mutual fund industry, said Laura Cha Shih May-lung, vice-chairwoman of the China Securities Regulatory Commission (CSRC) in Beijing.

She made the remarks on Wednesday at a seminar on China's mutual fund regulatory framework, hosted by the China Association of Securities Investment Funds.

The vice-chairwoman said with China's entry into WTO, applications will be pouring in from foreign institutions, while the launch of the first-ever joint venture fund management firm will be soon underway.

She pointed out, however, the existing regulatory system is becoming outdated and there is an urgent need to fill the blank in the legislative system to cope with the latest developments in the industry.

Despite the challenges ahead, the former vice-chairwomen of Hong Kong's Securities and Futures Commission (SFC) expressed confidence in the Chinese fund market's ability to prevail.

In its short history of three years, the industry has accumulated invaluable experience, while individual investors, insurance funds and other investors in the market have shown a very strong demand for mutual funds, she said.

The enthusiasm in the market for setting up fund management firms is very high, she said, adding that more than 80 institutions had expressed such intentions in the first half of the year.

She charged fund management firms to improve their management and quality of fund operation, to improve their corporate governance structure and step up in-house control for the prevention of malpractice.