That would be a dramatic reversal from last year, when assets under management for bond funds surged 142 percent to 1.93 trillion yuan (230 billion pounds), while equity and balanced fund assets dropped 17 percent to 1.99 trillion yuan, according to data from Chinese consultancy Z-Ben Advisors.
"Bond investors face the triple whammy - rising inflation, improving economy, and tightening liquidity," said Xie Yi, executive director at First Seafront Fund Management Co.
While China's main stock index fell 12 percent last year, yuan-denominated bonds had been moving the other way, with benchmark 10-year bond prices rising enough to knock 200 basis points off yields from mid-2014 to October last year.
But a two-month bond sell-off late last year sent yields up again, reclaiming nearly a third of the gains, as concerns over capital outflows and a falling yuan spooked investors.
The yields have risen a further 15 bps to 3.22 percent in 2017 as China intervened to defend the yuan.
"We're at a turning point in liquidity conditions," said Gu Weiyong, chief investment officer at Ucom Investment Co, as central banks shift toward tighter monetary policies both in China and the United States.
Gu, who slashed his bond holdings at the end of last year, said he only sees some "trading opportunities" this year in China's bond market, as "yields will likely rise further, along with inflation".
Inflation in China has been picking up in line with the rally in commodities, feeding off government's economic stimulus and restructuring efforts. In September a rise in producer prices ended nearly five years of deflation, and they surged 5.5 percent in December.
The change in perception is already having an impact on the sales of bond funds, which were popular last year. With interest waning, a number of fund houses, including China Asset Management Co, GF Fund Management Co and Wanjia Asset Management Co, have extended the subscription periods for new bond funds over the past month.
"2017 will be a year of tighter monetary policies, and higher yields, so we need to be cautious when allocating assets into fixed-income products," said Chen Liming, head of the wealth management unit at Everbright Securities Co.
But stocks look increasingly attractive, he added.
"The economy has bottomed out, and listed companies' profitability is improving, so we should allocate more to equities."
UBS China strategist Gao Ting expects China's stock market to rise around 6 percent in 2017, driven mainly by improving corporate fundamentals, and Franklin Templeton Sealand Fund Management Co Ltd has also forecast that Chinese stocks will trend up in 2017.
(Editing by Vidya Ranganathan and Will Waterman)
By Samuel Shen and John Ruwitch
