China’s trust assets expanded almost 8 percent in the first quarter to a record, signaling that a government crackdown on shadow banking and a rise in defaults haven’t curbed demand for the high-yield investments.
The nation’s 68 trust companies ended March with 11.7 trillion yuan ($1.9 trillion) after attracting 820 billion yuan in assets, or the most in four quarters, according to a statement posted by industry group China Trustee Association on its website today. The average yield of the trust products fell to 6.44 percent in the quarter from 6.62 percent a year earlier.
The expansion undermines authorities’ efforts to curtail credit growth, especially outside the state-controlled banking system, as Premier Li Keqiang grapples with risks from shadow banking amid an economic slowdown. The industry, which offers returns that are more than double that of bank deposits to raise funds for companies from coal miners to developers, avoided in January what would have been China’s first trust default.
China’s banking regulator this month stepped up supervision of the trust industry by tightening the approval process on the companies’ entry into new businesses and products. Owners of the trust companies were also ordered to prepare to provide funding or sell their stakes when they face liquidity constraints.
The growth model for China’s trust industry faces challenges as it won’t be able to sustain “high-yield and low-risk” products, the association said in the statement.