Chinese Police Confront Trust Investors Demanding Repayment

Chinese investors demanding their money back from a troubled 973 million-yuan ($156 million) high-yield product in Shanxi province were confronted by police in front of a China Construction Bank Corp. branch.

People wearing white masks with the words “despicable bank” and “pay back our money” were among at least 30 investors facing special-forces officers in dark uniforms in Taiyuan city, about 521 kilometers (324 miles) southwest of Beijing. The nation’s second-largest bank is the custodian of the Songhuajiang River No. 77 trust, which missed six payments as of last month, according to the Economic Observer.

“We have been cheated by CCB,” said Wang Fengying, 60, a Shanxi resident who said her husband had invested 1 million yuan in the product. “Our parents are very old. We need the money for their medical bills and to buy a home for my child. We are so miserable and they won’t even let us demand our money back.”

The unrest underscores the stress in China’s $1.75 trillion trust industry as loans sour in an economy that grew at the slowest pace in six quarters. A product distributed by Industrial & Commercial Bank of China Ltd. to raise funds for a troubled coal miner was bailed out in January to avert what would have been the first trust default in at least a decade.

Bank Meeting

State-backed Jilin Province Trust Co. created the Songhuajiang River No. 77 product to raise funds to finance mining projects for Shanxi Liansheng Energy Co., the biggest private coal miner in the province, according to a contract for the product obtained from Li Taishan, the leader of the investors gathering in Taiyuan.

The group dispersed soon after Li, 60, met for about three hours with Construction Bank staff members inside the branch, emerging later to say that the bank had asked for more time. The investors plan to hold a silent protest at the provincial government office later today, he said.

Construction Bank is closely monitoring the issue and didn’t have any immediate comment on the gathering or on repayments to investors, a Beijing-based press officer said by phone today. An external spokeswoman for Jilin Trust didn’t immediately respond to phone calls and an e-mail seeking comment.

The trust offered investors an annual return of 9.8 percent to 12 percent, depending on the investment amount, with a minimum of 1 million yuan, the product contract showed. Construction Bank currently pays 3.25 percent on one-year time deposits, according to its website.

Trust Assets

“They told us the interest rate is three times the bank saving rate,” Wang, the woman whose husband had invested in the Songhuajiang River trust, said. “They said they wouldn’t risk the bank’s reputation. It’s our hard-earned money.”

Investors in the product also gathered at Construction Bank’s Beijing headquarters three weeks ago asking for their money back.

Liansheng Energy owed six trusts more than 4 billion yuan, according to a Jan. 9 report from Haitong Securities Co. The coal miner’s creditors agreed to a debt restructuring plan and to bring in strategic investors, Xinhua reported Feb. 17. The Songhuajiang River trust had missed six interest and principal repayments as of last month, the Economic Observer reported March 24.

Jilin Trust is the sole non-bank trust company in the northeastern Chinese province of the same name and manages assets worth about 32 billion yuan in infrastructure, energy, transportation and real estate, according to its website. The local government owns 97 percent of Jilin Trust, according to its 2012 annual report.

Slowing Growth

Returns exceeding bank deposits have lured investors to trusts, allowing the products to become the biggest segment of the country’s financial industry after banks. Trust assets have surged more than fourfold from the beginning of 2010, making more investors vulnerable to losses as China’s slowing economy increases the difficulty for borrowers to repay debt.

Gross domestic product rose 7.4 percent in the January-to-March period from a year earlier, the statistics bureau said today. While the pace exceeded the 7.3 percent median estimate in a Bloomberg News economist survey, it was the slowest rate since the third quarter of 2012.

At least 20 trust products have run into difficulty making payments since 2012, according to Beijing-based China Securities Co. All have avoided default as issuers or third parties such as state-owned bad-loan managers and guarantee firms eventually repaid investors in full.

In January, ICBC offered investors in a product issued by China Credit Trust Co. the option to sell rights in the trust to unidentified buyers, staving off a default that threatened to roil China’s financial markets. About 5.3 trillion yuan of products are due to mature this year, up from 3.5 trillion yuan in 2013, Haitong Securities estimated in January.