China's $2.4 Trillion of Trusts Hunt for Post-Rout Growth Engine

  • Stock rout triggered first decline in trust assets since 2010
  • Industry group says trusts should expand in other areas

China’s $2.4 trillion trust industry is looking for a new growth engine after the stock-market rout over the summer drove its first quarterly decline in assets under management since at least 2010.

Trust companies’ assets fell 1.6 percent to 15.6 trillion yuan as of Sept. 30 from the previous quarter, according to data released Wednesday by the China Trustee Association. That reversed a 10 percent gain in the second quarter when equities were booming.

The stock market’s gyrations and a lack of good investment projects to attract investors drove the decline, the association said, adding that the industry needed to look beyond equities for sources of growth. The Shanghai Composite Index was 30 percent below its June peak on Wednesday, while up 23 percent from an August low.

Trusts, which require investments of at least 1 million yuan for an individual, were one of the sources of unregulated leverage during the Chinese stock boom. The government has cracked down on the use of so-called “umbrella trusts” by Chinese investors trying to bypass restrictions on borrowing to purchase shares.

Equities, Bonds

Trusts had 902 billion yuan of equity holdings at the end of September, down 36 percent from three months earlier, while bond holdings were 1.47 trillion yuan, up 10 percent. Those numbers reflect both money flows and asset values.

The average annualized return of trust products fell to 7.3 percent in the third quarter from 10.2 percent in the second quarter.

Trusts have contributed to China’s key role in pushing up global shadow-banking assets, estimated by the Financial Stability Board to stand at $36 trillion last year.

China’s trust industry had 506 so-called “risky” products valued at 108.3 billion yuan at the end of September, up from 450 products and 103.4 billion yuan three months earlier, the China Trustee Association said.

— With assistance by Jun Luo

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