Caixin
Mar 05, 2021 06:44 AM
FINANCE

Former Top Securities Regulator Urges Revisions to Family Trust Law

By the end of June 2020, 9,049 family trusts were set up in China holding property valued at 186 billion yuan ($29 billion), data shows.
By the end of June 2020, 9,049 family trusts were set up in China holding property valued at 186 billion yuan ($29 billion), data shows.

Xiao Gang, former head of China’s securities regulatory commission, plans to submit a proposal to the annual “Two Sessions” to improve the trust system and promote the development of family trusts, he said Thursday.

Family trusts are among the most important institutional arrangements for the protection and inheritance of private enterprise wealth, Xiao said. The former chairman of China Securities Regulatory Commission is a member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), which is meeting in parallel with the National People’s Congress in China’s annual top political gatherings.

There are 32 million private enterprises in China, and private entrepreneurs have a strong demand for family trusts, Xiao told Caixin. Family trusts can promote the smooth inheritance of private entrepreneurs’ wealth and reduce the loss of private wealth in the process of inheritance, he said.

Xiao suggested that the Trust Law be amended to regulate the obligations of trustees. Infrastructure to support family trusts should also be set up, such as nontransaction transfer systems for trust property, a trust registration system and a trust tax system, he said.

In recent years, many domestic trust companies have started to provide family trust services. By the end of June 2020, 9,049 family trusts had been set up in China, holding property valued at 186 billion yuan ($29 billion), data shows. Currently family trust assets are mainly cash, while shares of listed companies, private equity and real estate properties, commonly seen in offshore family trusts, are rarely included in China’s family trusts.

The development of family trusts is restricted by the current Trust Law, Xiao said. Due to lack of clear stipulation in the law, in practice the nontransaction transfer of trust property cannot be conducted directly, which severely restricts the establishment of noncash family trusts, Xiao said.

Currently, changes in ownership of trust assets are treated as market transactions, which are subject to high tax rates, making it undesirable as a way to pass on private wealth through family trusts, Xiao said.

In late 2018, four Chinese tycoons transferred more than $17 billion of their wealth into offshore family trusts, underscoring how the rich are scrambling to protect their fortunes from hefty taxation.

Sun Hongbin, chairman of real estate developer Sunac China Holdings Ltd., shifted most of his stake in the company to South Dakota Trust Co. LLC. Longfor Group Holdings Ltd. Chairwoman Wu Yajun, one of China’s richest women, made a similar move, as did the wealthy magnates behind food distributors Dali Foods Group Co. Ltd. and Zhou Hei Ya International Holdings Co. Ltd.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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