Morningstar reports that China's ETF market experiences a "stupendous" increase in growth, with inflows surging five times in just three years.

• Morningstar reports that Chinese exchange-traded funds experienced remarkable growth over the past three years, with inflows consistently setting new records.
• The AUM of ETFs in China more than doubled from 2020 to 1.82 trillion yuan by the end of last year.
• Since 2022, the broader China A-shares market has been "sluggish," with bright spots only in specific industries, according to Morningstar.

Morningstar reports that Chinese exchange-traded funds experienced a "staggering" growth over the past five years, with inflows consistently setting new records.

Wanda Wang, Morningstar's analyst, stated in a June report that annual inflows to China ETFs increased almost five times over the past three years.

The total yearly inflows to Chinese ETFs increased from 127.2 billion yuan ($17.49 billion) in 2021 to 604.3 billion yuan in 2023.

The AUM of ETFs in China more than doubled from the end of 2020 to 1.82 trillion yuan by the end of last year.

According to a Morningstar report, the annual assets under management growth rate of ETFs in China averaged 40% between 2018 and 2023, resulting in record highs every year.

Since 2022, the broader China A-shares market has been "sluggish," with bright spots only in specific industries, according to the financial services firm.

Over the past few years, the Chinese ETF market has experienced rapid growth, according to Wang's statement to CNBC.

Despite the challenges, actively managed funds were able to outperform, contributing to the growth of China's ETF market and doubling the total AUM to 2 trillion yuan in just three years.

Institutional investors have been investing in broad-based index-tracking ETFs, which is the primary reason for the rapid inflows of ETFs in China, according to Wang.

'Immense traction' for equity ETFs

In the last three years, equity products experienced significant growth, accounting for 96% of the 870 ETFs in China by the end of 2023.

The annual AUM of China's equity ETFs reached a record high in 2023, with inflows of 575.6 billion yuan surpassing the total inflows between 2019 and 2022.

Large amounts of assets were invested in Morningstar's sector equity tech and communications category, according to Wang, due to the booming semiconductor sector.

The report revealed that there were net outflows in the sector equity financial and real estate category.

Fixed income ETFs, comprising 4% of total ETFs, experienced slower growth in product launches and AUM compared to commodities ETFs, which mainly consisted of gold ETFs and represented less than 2%.

The three largest ETF providers in China by AUM are China Asset Management, E Fund Management, and Huatai-PineBridge, as observed by Morningstar.

— CNBC's Evelyn Cheng contributed to this report.