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Trust-Company-Managed Assets Top 20 Trillion Yuan in 2016

By Yang Qiaoling and Chen Na

(Beijing) — Assets managed by trust companies topped 20 trillion yuan ($2.9 trillion) by the end of 2016, driven largely by the so-called conduit business, where the trust product serves only as a fundraising tool for companies that otherwise couldn’t get loans.

Since the end of September, assets managed by the trust industry increased 11.3% to 20.22 trillion yuan, according to a report released Wednesday by the China Trustee Association.

“In principle, under the current circumstances of asset shortage, the total assets in the industry would have shrunk,” said a risk-control director at a midsize trust firm. “The increase mostly came from the conduit business.”

Unlike trust companies in Western financial systems, trust firms in China have wide latitude to operate across the financial sector and often act as a channel through which companies can get loans when they have trouble borrowing directly from banks.

As the securities and insurance watchdogs reined in the conduit business provided by insurers, stock brokers and fund managers, many companies, such as property developers, which face policy restrictions on borrowing directly from banks, have turned to trust companies for funding support. While there is nothing illegal with the conduit business, trust companies have circumvented regulatory risk-control requirements and deviated from their core business, industry observers said.

Faced with increasing risks, regulators have started taking actions to tighten constraints on trust companies’ conduit business. In December, the China Banking Regulatory Commission (CBRC) said it plans to divide trust products and services into eight categories based on how funds are invested, a move aimed at better controlling the risk of all trust company businesses.

“Trust firms should reduce and then eliminate low-quality trust services that do not meet regulatory standards,” Deng Zhiyi, director of the CBRC trust department, said in an interview with Caixin earlier this month.

On a brighter note, risky trust products, whose assets were illiquid or not worth as much as the original investment, have declined, falling to 545 from 606 at the end of September, according to the report. The nonperforming rate also declined to 0.58% from 0.78%.

Xing Cheng, executive director of a trust and fund research group at Renmin University of China in Beijing, said the country’s trust industry has formed a multilevel risk-prevention and control system so the 0.58% non-performing rate in general is controllable.

Contact reporter Chen Na (nachen@caixin.com)

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