Trusts

2016.02.24 – China Trustee Association published the China Trust Industry Development Analysis Report, key items translated below, plus commentary.


Total Assets by year end 2015 reached Rmb16.3tn, up 16.6% YoY from Rmb13.98tn at 2014 YE. Growth slowed from 2014’s YoY growth of 28.14%. 2015 Q4 up 4.35% QoQ, reversing Q3 QoQ decline of -1.58%.

<< Slowing YoY growth rate likely due to the stockmarket crash and clampdown on illegal margin financing which was channeled through ‘umbrella trusts’.
 

Revenue reached Rmb117.6bn, up 23.15% on 2014’s Rmb95.5bn. 2015 Q4 up 27.27% QoQ, however only up 2.19% YoY

<< Reflecting strong 2014 Q4 performance driven by umbrella trust flows into the stockmarket.  

Profits up 16.86% in 2015 to Rmb75.1bn, from Rmb64.2bn in 2014. Whilst 2015 Q4 was up 28.71% QoQ, it was a contraction YoY.

<< Q4s historically strong as firms face liquidity tightening at year end, especially to pay back loan principals,  before new loans issued in Q1. 
  

Trust functions are undergoing change, whereby fundraising trusts as a share of total trust assets are in decline, falling from 47.76% in 2013, to 33.65% in 2014, and 24.32% in 2015. This is in response to the economy entering the ‘new normal’.

<< Whilst fundraising trusts have decreased relatively speaking, in absolute terms their assets have held fairly constant. The fall in share is a response to the regulators’ crackdown on local government financing vehicles and real estate trust loans, and lower interest rate commercial loans displacing some trust business in 2015. However 2015 media reports indicate regulatory arbitrage meant some trust loan business is disguised under ‘fixed return investments’.   

Investment destinations for Rmb14.69tn in 2015 are as follows: Commercial Enterprises 22.51%, Securities Markets 20.35%, Financial Institutions 17.93%, Basic Industry 17.89%, Real Estate 8.76%.

<< The share of real estate and basic industry has declined reflecting the change in Chinese investors preferences, switching from property to the securities markets. This has received support from the Chinese government, which aims to develop China’s capital markets. Again however there are Chinese media reports of some trusts advertised as securities trusts, but the funds raised are finally invested in real estate.
 

Source: Translation of latest data from the official Chinese Trust Association website

 

Background reading:

2015 China Trust Survey

This report reviews the trust sector since the year of 2007 in mainland China, and analyses the overall operational status of trust companies in 2015. The report also highlights the challenges faced by the sector under the “new normal”condition, and look into the future trends of the trust sector.

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