ETF Market Shifts: First-Ever Disappearance of $10B+ ETFs Marks Dawn of Maturity in China's Passive Investing

ETF Market Structure Undergoes Dramatic Shift: First-Ever “Zero Billion-Yuan ETF” Across Entire Market—Broad-Based ETFs Enter a New Phase of存量 Competition and Structural Divergence

Mid-2024 marked a watershed moment for China’s A-share ETF market: the Huatai-PB CSI 300 ETF’s latest assets under management (AUM) stood at RMB 98.9 billion—crossing below the RMB 100-billion threshold for the first time. This is the first instance since the launch of China’s inaugural ETF in 2012 that no single ETF across the entire market has surpassed the RMB 100-billion mark. Far more than a mere fluctuation in scale, this milestone reflects a profound restructuring of China’s passive investment ecosystem—the era of coarse, scale-driven expansion anchored by “mega-ETFs” has definitively ended. In its place emerges a new phase characterized by high granularity, thematic specificity, cost sensitivity, and pronounced liquidity divergence.

From “Beta Democratization” to “Alpha Focus”: A Fundamental Shift in Allocation Logic

Over the past decade, broad-based ETFs delivered core value through low-cost, highly transparent exposure to market beta. Flagship products such as the CSI 300 and CSI 500 ETFs maintained dominant positions atop the AUM rankings—thanks to their index representativeness, convenient creation/redemption mechanisms, and robust market-making support—fostering a “one-dominant-multiple-strong” concentrated structure. Yet data from H1 2024 reveals a deep structural shift: the STAR 50 ETF delivered a net asset value (NAV) return of +64%, while traditional broad-based ETFs—including the Consumer 50 ETF and Dividend-Low Volatility ETF—posted gains of less than 10%, with some even registering negative returns. Capital flows tell a clear story: investors are no longer content with “buying the whole market”; instead, they actively select niche sectors backed by explicit industrial logic, demonstrable technological iteration trajectories, and strong policy catalysts.

This shift represents an upgrade in institutional allocation paradigms—from “beta democratization” toward “alpha focus.” As economic transformation deepens, industrial policies proliferate (e.g., large language models, domestic substitution in semiconductor equipment, new regulatory guidelines for brain-computer interface medical devices), and global tech competition intensifies, market efficiency improves—compressing the excess returns historically generated by mean-reversion-oriented broad-based strategies. Investors now willingly pay premiums for verifiable technological breakthroughs (e.g., Cambricon’s market cap surpassing RMB 1 trillion—a proxy for China’s breakthrough in domestic computing power) and clearly defined commercialization pathways (e.g., Zhipu AI and Hua Hong Macro’s outperformance within Hong Kong tech indices). ETFs have thus evolved from mere “tools” into “thematic vehicles,” with their underlying logic shifting decisively from “breadth of coverage” to “depth of focus.”

Structural Divergence: The Rise of Thematic ETFs Amid Intensifying Broad-Based Competition

The scale gap directly triggers structural rebalancing. As of end-June 2024, total A-share ETF AUM reached RMB 1.8 trillion—but the top ten ETFs’ combined share of total AUM fell to ~35% (down from a peak above 50% in 2021), while thematic ETFs surged in number by over 40%, particularly in frontier domains such as AI chips, robotics, low-altitude economy, and biopharmaceuticals. Notably, these new entrants do not simply replicate broad-based logic: the STAR Chip ETF, for example, precisely excludes non-semiconductor constituents and strengthens full-chain coverage—from chip design and manufacturing to packaging and testing—while charging fees typically 15–30 basis points lower than traditional broad-based ETFs. Meanwhile, certain liquidity-optimized ETFs introduce market-maker incentive mechanisms, compressing average daily bid-ask spreads to under 0.05%—significantly outperforming peers.

Simultaneously, traditional broad-based ETFs face intensifying “intra-category competition.” The CSI 300 ETF family has expanded to 12 products; the CSI 500 ETF cohort now numbers nine. Homogenized competition has ignited fee wars and liquidity “arms races”: multiple fund managers have slashed management fees below 0.15% and partnered with securities firms to ramp up market-making resources. Yet marginal returns on scale growth are diminishing: new capital increasingly flows toward “small but beautiful” thematic products—not toward filling gaps among broad-based offerings. This confirms the market’s transition from “incremental-driven” to “存量 reallocation”—with funds rapidly rotating across styles, themes, and fee structures. This dynamic imposes unprecedented integrated demands on ETF issuers’ index engineering capabilities, channel coordination efficiency, and market-makers’ pricing precision.

Capability Restructuring: Triple Challenges Facing Issuers, Market Makers & Index Providers

Under this new paradigm, all three key stakeholders are undergoing capability transformation.
ETF Issuers must transcend the role of “index replicators”: First, they need to strengthen active index construction capabilities—e.g., dynamically adjusting weighting factors in response to industrial policy shifts (such as increased weightings for “hard-tech” enterprises post-new STAR Market regulations). Second, they must build an “ETF+” ecosystem—deeply integrating products with investor education, quantitative tools, and cross-market arbitrage services. Huatai-PB’s recent launch of the “STAR 50 Enhanced ETF,” which embeds a fundamentals-based enhancement module atop passive tracking, exemplifies a pragmatic response to rising alpha demand.

Market Makers confront an upgrade in liquidity provision models. Traditional quoting-based market making—relying solely on bid-ask width—is proving insufficient. Advanced capabilities now include algorithmic trading, cross-market arbitrage (e.g., linking A-share ETFs with Hong Kong tech index futures), and sophisticated risk hedging. The Hong Kong Exchanges and Clearing’s (HKEX) parallel initiative—optimizing the “board lot” framework by lowering the minimum board lot value from HKD 2,000 to HKD 1,000 and standardizing eight lot sizes—effectively lowers participation barriers for retail investors and enhances overall market liquidity depth. This offers instructive insights for A-share ETF market makers: they must match diverse investor trading habits and capital scales with far greater granularity.

Index Providers, meanwhile, assume the new role of “rule-setters.” The National Medical Products Administration’s (NMPA) recent release of the Guiding Principles for Classification and Definition of Brain-Computer Interface Medical Devices does more than regulate innovation boundaries—it signals that future thematic index development must proactively embed regulatory compliance frameworks. Index providers must establish regular communication channels with industry authorities and regulators to ensure indices reflect both technological frontiers and safety, ethics, and clinical access standards—avoiding valuation bubbles arising from “concept-first, implementation-later” mismatches.

Risk Alert: Rebalancing High Valuations Against Earnings Realization

Of course, structural prosperity harbors latent risks. Cambricon’s RMB 1-trillion market cap milestone—while underscoring capital markets’ unwavering confidence in hard-tech—also highlights mounting pressure from valuation-earnings misalignment. Currently, AI-related ETFs trade at an average price-to-sales (P/S) ratio of 25x—well above historical averages. Should subsequent technological iteration fall short of expectations, domestic substitution progress decelerate, or industry capital expenditure cycles peak, related thematic ETFs may face downward revisions to their valuation anchors. Investors must vigilantly distinguish between “thematic speculation” and “genuine growth”; fund managers, too, must intensify portfolio-level due diligence and track sector-wide business cycle indicators—preventing ETFs from devolving into speculative instruments for thematic narratives.

The “de-megafication” of the ETF market is not a signal of decline—but rather an inevitable hallmark of market maturity. When RMB 100-billion AUM ceases to serve as a moat, true competitiveness reverts to scientific product design, operational service granularity, and deep, vertical industry insight. The存量 competition among broad-based ETFs is, in fact, a microcosm of equity assets’ pronounced tilt toward technology-driven growth—signifying not the retreat of value investing, but the evolution of how value is discovered: from “betting on national destiny” to “investing in specific赛道 (tracks),” from “macro-level analysis” to “micro-level scrutiny,” and from “passively harvesting beta” to “meticulously cultivating alpha.” This quiet yet profound transformation is reshaping the foundational logic of China’s capital markets.