The research firm gave China a "D" because of high fees, particularly for allocation and money market funds. China's limitations on overseas investing and restrictions on foreign-domiciled funds were also factors, as well as a relative lack of disclosure.
"China was one of a minority of markets where the disclosure of conflicts of interest by advisors was not common, coupled with relatively aggressive incentive structures," according to the report.
Morningstar's grading system (A, B, C, D, F) reflects a combined score on regulation and taxation, disclosure, fees and expenses and sales and media.
The firm said it favours "active fund regulation, a low investor tax burden, more disclosure, lower fund fees, a varied fund distribution system and local news media that helps to educate investors about their choices".
China's score breakdown was regulation and taxes (B-), disclosure (C+), fees and expenses (D+), sales and media (C-).
Korea shared the top score of A with the US. Morningstar cited "solid results in all four areas and a strong showing in regulation and taxation.
"When viewing markets such as Korea and Taiwan, it is worth noting that the regulators have put in place good guidelines for the conduct of a fund industry, adopting global best practices in many instances," the firm said.
The report also noted that of the 25 countries evaluated, the fund investor enjoys a tax-free environment only in Hong Kong and Singapore.
In 22 of the countries evaluated, the firm said banks and insurance companies were cited as the dominant fund sales channels. The next most common channel, cited in seven countries, is the independent advisor.
A sampling of some countries ranked by Morningstar on the basis of fund investing experience: