Industry watchdog China Securities Regulatory Commission (CSRC) has been studying a law governing private funds, media report.

But Shi said most private funds keep their word, because unlike publicly sold funds, which are supported by banks, credit remains private funds' best weapon to win clients.

Lurking risks

Shi said that risks are compounding for investors pouring their money into the booming market.

He said that during the past six months his company's system underwent strain because of massive booms in the number of new accounts opened. Both times, he points out, the market was in decline.

"Everyone thinks the declines are temporary," Shi said.

On the last day of January, the Shanghai Composite Index suddenly plummeted 144 points, or 4.9 percent, to close at 2,786. Despite the dramatic drop, most securities analysts believe it is an adjustment of the bullish market, rather than a warning that it is taking a bearish turn.

1

2

3

4

5

6

(For more biz stories, please visit Industry Updates)