In the winter of 1999, as people around the world bid farewell to the millennium and anticipated the dawn of a new era, a significant transformation was taking shape in a different corner of the globeLiu Xiaodong, a man from Henan province, was standing by the East River in Manhattan, waving goodbye to his long-standing career in investment bankingHis decision marked a departure not only from his job but also from the dreams many held about Wall StreetLiu had grand ambitions; he intended to develop a Chinese version of Exchange-Traded Funds (ETFs).

Fast forward to 2004, Liu had ascended to the role of Vice General Manager at the Shanghai Stock Exchange, where he enthusiastically declared, “Not only do we want to create the SSE 50 ETF, but we will also launch more innovative ETF products.” That winter saw the birth of China's first-ever ETF—the SSE 50 ETF—just as the Chinese stock market was preparing to embark on a lengthy bull runThis moment resembled planting a seed, a small yet potent sign of growth to come within China's capital markets.

By 2024, as China’s economy surged to become the world's second largest, the effects of Liu's initial efforts had far surpassed expectationsIndustries ranging from artificial intelligence to aerospace showed tremendous growth, and the capital markets drew global attentionThe small seed of an ETF that had been planted two decades earlier had flourished into a massive financial tree, boasting a size exceeding one trillion yuan.

The rapid growth of the ETF market can't be understatedBack in 1999, when Liu made his call for a Chinese ETF, the global ETF market was already worth an impressive 16 trillion yuanToday, China’s ETF market surpasses 30 trillion yuan, with passive funds holding a greater market cap in A-shares than active fundsIt is clear that we have entered an era defined by passive investments.

The passage of twenty years might seem like just a blink of an eye, but it was loaded with trials, innovations, and growth

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The journey of ETFs in China has not been without its challenges; it has been more about breaking barriers than celebrating triumphs, achieving success after years of quiet preparation.

The roots of the Chinese mutual fund industry can be traced back to 1998 with the establishment of several fund companies, including the much-respected China Asset ManagementDuring this time, both of China’s major stock exchanges began exploring new fund productsWhile the Shenzhen Stock Exchange pursued the development of Listed Open-Ended Funds (LOFs), the Shanghai Stock Exchange set its sights on ETFs.

In 2001, the Shanghai Stock Exchange first floated the idea of ETFs while investigating product innovationsHowever, given the limited number of available indices and the novelty of the concept, there was hesitation among potential investors and fund managers to go forward.

For three long years, the market awaited someone to take the plunge—the "first mover" who would dare to become the pioneering force in this unexplored territory.

The winter of 2004 turned out to be particularly harsh, but for a dedicated group within the capital markets, every moment was charged with excitement and anticipationArmed with legal approvals, China Asset Management saw an unprecedented opportunity and began collaborating with the Shanghai Stock Exchange to issue ETF productsThey swiftly became the frontrunner among the numerous fund companies vying for ETF development authorization, ultimately launching China’s first ETF—the Huaxia SSE 50 ETF.

The launch sent shockwaves of enthusiasm rippling through the capital marketMajor brokerage houses in Shanghai were plastered with promotional posters for the ETFThe campaign attracted considerable attention, enticing investors with the slogan, “Give your investment a chance for a change.”

However, the initial response to this new product was lukewarm due to the complexity of the trading rules associated with ETFs

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Many client managers from financial institutions found themselves explaining the intricacies of these rules to investors, often needing to explain them multiple times for true understanding.

Li Yimei, General Manager of China Asset Management, reflected on the challenges faced during the ETF's introductory phase in 2004. She recalled the relentless roadshows and presentations across the country as their sales team worked tirelessly to educate potential investors about this innovative, yet unfamiliar investment tool.

Nevertheless, through perseverance and commitment, a breakthrough was achievedThe Huaxia SSE 50 ETF successfully raised approximately 6.5 billion yuan in assets, setting a sturdy foundation for the future growth of ETFs in China.

The early successes of the Huaxia ETF inspired other fund managers to enter the burgeoning marketBy 2006, notable funds like E Fund, Huatai-Pb and Hwabao Securities had secured approvals to issue their own ETFsThe entry of these players signaled that Huaxia was no longer alone in its venture; the curtain was slowly lifting on a blossoming ETF market.

Post-2010 saw an even more significant acceleration in ETF innovations as the vast array of market indices began to diversifyThese indices bridged companies, financial products, and investors—demonstrating their crucial role in the high-quality development of the capital marketETFs have not only funneled investments into the capital market to aid economic growth but have also supplied residents with essential tools for wealth management and asset allocation.

Recent years have displayed remarkable trends, particularly evident in the capital market’s support for state-owned enterprises and high-tech industriesThe recently established Central State-Owned Enterprise ETF products have cumulatively crossed 40 billion yuan, while high-tech sector indices like the Science and Technology Innovation Index surpassed 150 billion yuan.

As of now, the ETF market within China has already surpassed a staggering 30 trillion yuan, with investments reaching nearly 10 million households

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This level of penetration demonstrates the increasingly prominent role that ETFs are playing in accessible financial services.

By October 8, 2024, the scale of equity-based ETFs broke the landmark of 30 trillion yuan, making it a historic achievementThe journey of breaking through various threshold values was telling; while it took 16 years for the ETF scale to first hit the one trillion mark, subsequent milestones of 20 trillion and 30 trillion were achieved in mere three years and ten months respectively.

Yet, in this thriving ETF space, the journey is not as breezy as it appearsJust because the market is abundant with investments doesn’t guarantee easy profitsInvestors are keenly interested in opportunities related to core A-share assets, yet navigating the increasingly crowded landscape of index names can be confusingHow does one choose a specific index to invest in when there are so many similar-sounding options?

Could there be a tool designed to simplify index investing, one that is user-friendly, thorough in providing information, and tailored specifically for this purpose?

Li Yimei often expresses the importance of making the complex simple for investorsHer philosophy captures the very essence of the endeavor—helping customers navigate the financial landscape effortlesslyShe cites their early motivations in establishing their ETF products as fundamentally tied to this ethos.

This collective growth from the inception of the ETF signifies a shared benefit among all fund companies and their investorsThe launch of the “Red Rocket” index tool, accessible to all investors and institutions, represents a leap toward enhanced clarity in investment.

The "Red Rocket" platform enables a comprehensive service relating to index investments for both inexperienced and seasoned investors alikeBy addressing macroeconomic perspectives and micro-level intricacies, the platform serves as a crucial guide in demystifying index investing

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