If Quick Profits Are No Longer Possible, Are Trust Companies Still Worth It? (AI Translation)
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文｜财新周刊 刘冉
By Caixin Weekly's Liu Ran
转型探索中的中国信托业，在2023年末管理资产规模回升至23.92万亿元，同比增长13%；但营业收入和净利润仅小幅微增，且行业分化加剧，半数以上企业营收和净利润负增长。规模与利润走势分化，意味着信托业转型进入“深水区”，亟须围绕信托制度的核心提升竞争力。
The Chinese trust industry, currently undergoing a period of transformation, saw its assets under management rebound to ¥23.92 trillion by the end of 2023, marking a 13% year-over-year increase. However, operating income and net profit experienced only slight upticks, while industry polarization intensified, with more than half of the companies reporting declines in revenue and net profit. The divergence between asset scale and profit trends indicates that the industry's transformation has entered a "deep water zone," necessitating a focus on enhancing competitiveness around the core principles of the trust system.
截至目前，已有59家信托公司披露2023年年报；其中，30家信托公司营业收入负增长，实现净利润正增长的信托公司不足一半，有6家为亏损状态。另外，部分信托公司已连续几年未披露年报，风险处置迟缓。
To date, 59 trust companies have disclosed their 2023 annual reports; among them, 30 reported a decline in revenue. Less than half achieved positive net profit growth, with six companies in a loss-making state. Furthermore, some trust companies have not released annual reports for several consecutive years, indicating a lag in risk management.
中粮信托良益研究院报告指出，从2023年年报来看，信托公司经营业绩压力仍在，行业转型升级、高质量发展之路并非一蹴而就，信托行业“赚快钱和轻松钱”的时代已经过去。
A report by COFCO Trust Liangyi Research Institute points out that, judging from the 2023 annual reports, trust companies continue to face operational performance pressures. The path of industry transformation, upgrading, and high-quality development is not an overnight process—the era of "easy and fast money" in the trust industry is over.
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- The Chinese trust industry saw a 13% increase in assets under management in 2023, reaching ¥23.92 trillion.
- Despite the growth in assets, profits stagnated, causing an industry polarization with over half of the companies facing revenue and profit declines.
- Asset service trusts outpaced asset management trusts, constituting 57% of newly established trust products from June to December 2023.
## Summary
### Overview and Financial Performance [para. 1]
The Chinese trust industry, undergoing a significant transformation, saw its assets under management rebound to ¥23.92 trillion by the end of 2023, marking a 13% increase year-over-year. However, operating income and net profit experienced only minor increases, with significant industry polarization as over half of the companies reported declines in revenue and profit. This divergence highlights that the industry's transformation is in a "deep water zone," requiring enhanced competitiveness rooted in core trust system principles.
### Trust Company Reports [para. 2]
Of the 59 trust companies that disclosed their 2023 reports, 30 saw declines in revenue, and less than half achieved positive net profit growth. Six companies were in a loss-making state. Some companies have not released their annual reports for years, indicating issues in risk management.
### Regulatory Landscape and Business Transformation [para. 5]
The year 2023 marked a transformative period under the new "three classifications" regulations, which categorize trust businesses into asset management, asset service, and public welfare and charitable trusts. As of mid-May 2024, 30,415 trust products worth ¥4.33 trillion were established between June and December 2023, with asset service trusts driving growth, constituting 57.03% of the total scale. However, these trusts have relatively low trust compensation rates.
### Business Challenges and Workforce Dynamics [para. 6][para. 8][para. 9]
Although there is significant demand for asset service trusts, these do not compensate for the profits lost from reducing financing trusts. Innovative businesses like family trusts and risk disposal service trusts are being developed but are still in the verification stage and difficult to scale. Consequently, many trust companies are downsizing. The 59 companies reported having over 17,000 employees by the end of 2023, although this figure omits certain reductions.
### Industry Polarization and Mergers [para. 13][para. 14]
Under ongoing pressures, the license values of trust companies are attracting attention. Six companies experienced losses in 2023, with Kunlun Trust posting a net loss of 786 million yuan for two consecutive years. Some companies, like Xinhua Trust and Sichuan Trust, are undergoing bankruptcy restructuring. China's trust industry, spanning over 40 years, is undergoing another round of rectification to return to its core mission of managing entrusted assets, moving away from bank-like credit businesses.
### Profit and Revenue Analysis [para. 24][para. 25][para. 26][para. 28]
The trust industry's profits remain under pressure. While Ping An Trust led in revenue and net profit with 14.553 billion yuan and 4.255 billion yuan, respectively, these figures represent significant year-on-year declines. The average return on equity (ROE) among the 59 companies was 5.07%, down from 2022. Traditional trust businesses decline while lower-remuneration investment and service trusts increase, reducing overall industry remuneration rates.
### Strategic Transformation and Future Directions [para. 34]
Asset service trusts have become the fastest-growing segment under the new regulations, constituting 57% of newly established trust products' scale. Companies are focusing on wealth management service trusts like family and insurance trusts. These trust types have grown at a compound annual rate of 48% from 2018 to 2023. However, profitability remains a challenge for most trust companies.
### Operational Challenges [para. 57][para. 77]
The value of trust licenses is debated, especially as regulatory scrutiny tightens collaborations with third-party wealth management firms. Trust companies are now focusing on building internal wealth management teams. The industry's attractiveness has diminished, and existing risks and declining core business returns question the true value of these licenses. Mergers and consolidations are anticipated as the industry strives to enhance the quality of remaining institutions.
### Conclusion [para. 89][para. 117]
As the trust industry faces deeper transformations and tougher regulations, its future relies on successfully navigating this complex landscape. Trust companies need to optimize business structures, enhance capital utilization, and capitalize on growth opportunities in asset management and service segments to build a sustainable, profitable future.
- COFCO Trust
中粮信托 - COFCO Trust's research indicates that in 2023, the Chinese trust industry faced significant operational pressures despite asset growth. The sector is undergoing deep transformation, marked by modest revenue and profit growth, contrasting asset size increase, thus moving away from "easy money" and highlighting the need to enhance competitiveness within the trust system's core.
- Shanghai Financial and Development Laboratory
上海金融与发展实验室 - Shanghai Financial and Development Laboratory is directed by Zeng Gang, who noted that asset services trusts have significant demand but their generated income might not offset the decline in financing trusts. He emphasized the challenging nature of the transition in the trust industry and the necessity for competence in asset and service management to sustain growth and competitiveness.
- Everbright Trust
光大信托 - Everbright Trust, one of the key players in the Chinese trust industry, reported having 705 employees by the end of 2023, showing a reduction of 184 employees over two years. The company has adjusted its organizational structure to align with regulatory guidance and business needs, notably establishing specialized departments for standard products, wealth management, and family trusts.
- China Trust Registration Co., Ltd.
中国信托登记有限责任公司 - As of May 15, 2024, China Trust Registration Co., Ltd.'s Deputy General Manager, Liu Tiefeng, reported that from June to December 2023, the trust industry established 30,415 trust products with a total scale of 43.3 trillion yuan. The majority of these were asset service trust products, forming 57.03% of the total scale.
- Ping An Trust
平安信托 - Ping An Trust reported the highest revenue and net profit in the industry for 2023, with 145.53 billion RMB in revenue and 42.55 billion RMB in net profit, despite declines of 25.17% and 34.81%, respectively. The company has reduced its workforce significantly over the past two years and is focusing on transforming into areas like family and insurance trust services while maintaining a strategic shift away from traditional real estate trust projects.
- CITIC Trust
中建投信托 - CITIC Trust has the largest number of employees in the trust industry, with 725 as of the end of 2023. The company leads in asset management trust scale at 750.87 billion yuan. However, many employees are on contracts with other CITIC Group companies, and a number were not retained.
- China-Australia Trust
华澳信托 - The article did not specifically mention China-Australia Trust. It focused on the broader challenges, transformations, and current state of the Chinese trust industry, including statistical data and insights from various trust companies, but did not provide any specific information about China-Australia Trust.
- Great Wall Xingsheng Trust
长城新盛信托 - Great Wall Xingsheng Trust is one of the five trust companies with an operating income of less than 1 billion yuan in 2023.
- Huachen Trust
华宸信托 - Huachen Trust's 2023 annual revenue was under 1 billion yuan, making it one of the five trust companies with such low earnings. Additionally, the firm reported continuous losses over the past two years due to significant fair value losses from failed investments.
- Hangzhou Industrial and Commercial Trust
杭州工商信托 - Hangzhou Industrial and Commercial Trust has reported negative operating income for two consecutive years due to substantial losses from failed investments. For 2023, it is among the five trust companies with operating incomes below 1 billion yuan. The company's continuing negative performance reflects broader industry challenges amid transformation efforts.
- Kunlun Trust
昆仑信托 - Kunlun Trust has experienced significant financial challenges, recording consecutive annual losses. In 2023, the company reported a net profit loss of -7.86 billion RMB, a dramatic 95.04% decrease compared to the previous year. This positions Kunlun Trust as one of the few trust companies to face substantial ongoing profitability issues.
- Industrial Trust
兴业信托 - The article does not provide any specific information about Industrial Trust. There are references to other major trust companies and their financial statuses, but Industrial Trust is not mentioned.
- Wanxiang Trust
万向信托 - Wanxiang Trust had a significant portion of its business in real estate, with real estate trust accounting for 53.47% of its portfolio in 2023. However, it faced challenges, including product interest payment suspensions and project extensions. Around two-thirds of its active real estate business experienced overdue payments.
- Changan Trust
长安信托 - Changan Trust has not yet released its annual report for two consecutive years. According to the article, the company faces challenges in its financial performance and is currently working on resolving risks and restructuring efforts. In 2023, Changan Trust's operating revenue was 9.98 billion RMB, representing a 35% year-over-year decline, and it reported a net loss of 10.87 billion RMB, with the loss amount increasing compared to the previous year.
- Cedar Trust
雪松信托 - Cedar Trust (雪松信托) has not yet disclosed its 2023 annual report, marking the first time it has failed to do so. The company is experiencing issues with risk exposure and is in the process of undergoing risk management and restructuring efforts.
- Huaxin Trust
华鑫信托 - Huaxin Trust has not disclosed its annual report for four consecutive years and is currently dealing with risk resolution or restructuring. The company is one of several trust firms whose partial equity is still seeking buyers on Beijing and Shanghai property exchanges, indicating significant financial instability and operational challenges.
- Minmetals Trust
五矿信托 - Minmetals Trust, mentioned in the article, reported 2023 year-end family trust assets of 604.86 billion RMB, a 77.88% year-over-year increase. Additionally, its securities investment trust size surged by 770.26% to 3,829 billion RMB, accounting for 52% of its total trust assets.
- Xiamen Trust
厦门信托 - Xiamen Trust, as highlighted in the article, had an asset management trust scale of 882.15 billion yuan by the end of 2023, with this representing 50% of its total trust assets. This indicates a significant portion of their business is devoted to asset management trusts.
- China Resources Trust
华润信托 - China Resources Trust (华润信托) had over 1 trillion RMB in securities investment trust scale in 2023, with over 80% of its trust assets in this category. The company's asset management trust scale exceeded that of many peers, making it a significant player in China's trust industry.
- Foreign Trade Trust
外贸信托 - Foreign Trade Trust was mentioned as one of the only two companies whose 2023 securities investment trust scale exceeded one trillion RMB, positioning it alongside China Resources Trust. Securities investment trusts accounted for over 80% of its business.
- CITIC Trust
中信信托 - CITIC Trust had the highest number of employees in the trust industry at the end of 2023, with 725 employees, up from 704 in 2022. The company relies on external contracts for employment. Despite an increase in employee numbers, some staff contracts are with other CITIC Group entities, not directly with CITIC Trust.
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