2014-08-15

Trust Industry in Crisis

Based on the stories the Chinese financial media are reporting, the trust industry is already in crisis. Some analysts are still wondering though:

Analysts Wonder If Trust Industry Has Reached a Tipping Point
The country's formerly booming trust investment industry might have reached what one observer called "a tipping point," as growth plateaus and risk gets more attention.

Recent data from the China Trustee Association shows the industry shrunk in June, the first monthly decline since it took off in China in 2008. As of June 30, the assets of all 68 trust companies in the country stood at 12.48 trillion yuan, down 0.24 trillion yuan from the end of May.

The assets increased by 46 percent last year compared with 2012, which marked the end of a string of four years that saw annual growth rate of higher than 50 percent.
That's a major deceleration. From 50% growth to contraction in a little over a year.

Forty-three companies submitted their reports in July and the results show that their combined risk assets – investments at risk, including but are not limited to bad assets where the borrower has failed to make repayments on time – have exceeded 70 billion yuan.

Of that, 50 billion yuan worth of assets were at high risk, meaning their underlying assets were illiquid or not worth as much as the investment.

Citic Trust, Huarong International Trust and New China Trust reported an amount of risk assets that exceeded net assets at times during the past several months.
Does the ¥70 billion figure include the ¥10 billion project that failed in Anhui? Losses could pile up very quickly if the economy slows further.

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