China Trusts Staged Fourth-Quarter Comeback as Stocks Rebounded

  • Total trust assets rose 4.4 percent to $2.5 trillion
  • Government cracked down on trusts as source of market leverage

China’s trust industry staged a comeback in the fourth quarter of 2015, helped by the temporary rebound in the stock market from its summer rout.

Trust companies’ assets rose 4.4 percent to 16.3 trillion yuan ($2.5 trillion) at the end of December, compared with three months earlier, according to data released Wednesday by the China Trustee Association. That reversed a 1.6 percent decline in the third quarter, the period when Chinese shares were tumbling, which represented the first decline in trust industry assets under management since at least 2010.

Other than the third-quarter decline, trust company assets have been on an upward trend despite a clampdown by the government on certain sections of the industry, which have been blamed for providing some of the unregulated leverage that fueled China’s unsustainable stock-market boom last year. 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.

Trusts -- vehicles that invest in assets from stocks and bonds to art and wine -- had 1.1 trillion yuan of equity holdings at the end of December, up 23 percent from three months earlier, while bond holdings had risen 5 percent to 1.55 trillion yuan. The average annualized return of trust products rose to 14 percent in the fourth quarter, from 7.3 percent in the previous quarter.

China’s trust industry had 464 so-called “risky” products valued at 97.3 billion yuan at the end of December, the association said.

Trusts are a key component of China’s so-called shadow-banking sector, estimated by the Financial Stability Board to stand at $36 trillion last year. As well as umbrella trusts, China’s policy makers have been trying to rein in other shadow banking instruments such as entrusted loans, bankers’ acceptance, financial-leasing services and off-balance-sheet wealth-management products, which Standard & Poor’s estimates grew by 35 percent in 2015 to $2.1 trillion.

The industry posted a combined profit of 75 billion yuan in 2015, an increase of 17 percent from a year earlier.

— With assistance by Jun Luo

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