Caixin
Nov 17, 2016 07:03 PM
FINANCE

China to Launch First National Center for Trust Products

(Beijing) — China is on the verge of setting up a national center to register trust products, and possibly even allow some types of trading, making the 17 trillion yuan ($2.5 trillion) market more transparent and liquid, according to people with direct knowledge of the matter.

China Trust Registration Co., the government-backed company that will manage the center, could be open for business by as early as the end of this year, according to the people.

Trust companies in China manage assets for wealthy investors in the same way banks help their VIP clients invest their funds. Most of the products they sell are distinctively different from trusts overseas because their main purpose is to serve as a conduit — channeling funds to non-financial enterprises that cannot get loans directly from banks.

Trust companies typically raise funds for those borrowers by creating a trust product and selling them to investors. The rights to receive cash flows from such trusts can be sold, but trading has been thin due to a lack of information sharing that would allow sellers to quickly find buyers.

The new center is a key piece of the country's financial infrastructure and will be supervised by the China Banking Regulatory Commission, which will soon publish regulations specifying what the center can do and how it should operate, according to people with knowledge of the matter.

The main functions of the center include registering trust products and their beneficiaries as well as tracking related information. It aims to also become a trading platform for trust beneficiary rights after the main functions have been achieved, according to the people.

"The first and main target of the firm is to build a platform for the registration of products and trust beneficiary rights, and then promote unified standards based on which transactions of trust assets can be made more convenient," said an executive of a firm that has invested in China Trust Registration Co.

"It's a gradual process to achieve those functions," the executive said. "There are still many obstacles, and (overcoming them) requires a lot of expertise."

Data from the center will help financial regulators keep a close watch on the market and make the industry more transparent for the protection of trust investors, a person close to the firm said. Assets packed into a trust, for example, are legally safe from debt claims against the trustor, or the entity that creates the trust. Making information clear on what's included in a trust and what's not is therefore important, the person said.

China Trust Registration Co. has a registered capital of 3 billion yuan and was incorporated in the Shanghai Free Trade Zone. China Central Depository & Clearing Co., which provides securities depository and transactions settlement service for the interbank market, holds 51% of the firm. Other founding investors include China Trustee Association, China Trust Protection Fund Co., and 18 trust companies.

Contact reporter Wang Yuqian (yuqianwang@caixin.com); Ken Howe (kennethhowe@caixin.com)

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