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Trust products receive warm market response
By Sun Min (China Daily)
Updated: 2004-04-05 08:48

China's booming trust and investment business will soon have its own industry association, sources said.

"We received the approval from the Ministry of Civil Affairs for the launch of the association two weeks ago. Now we are only waiting for the final approval from the State Council," said Wu Dayong, vice-president of China Credit Trust Co Ltd and head of the industry association's preparatory committee.

He told China Daily last Friday that the China Banking Regulatory Commission (CBRC) had already given the go-ahead to the industry association earlier. So if things run smoothly, the licence will be granted in two to three months.

"The association will enhance self-discipline in the industry and communication with the public," Wu said.

The CBRC will also come up with more detailed rules on the procedure on issuing new trust products, he said.

China's trust and investment business is booming now after years of industry slow down which caused the shut down or merger of many firms in the sector and left only less than 60 qualified firms remaining.

As the regulatory environment is getting warmer, trust companies have quickened the pace in launching new projects over the past two years, many of which are real estate or financial trusts.

The Beijing International Trust and Investment Co, for example, has launched four trusts for public investors so far this year, including a bond investment trust that just started selling last Thursday, which has an estimated annual return of 4-8 per cent, company sources said.

Beijing-based China Credit Trust Co Ltd also issued three real estate trusts and a bank asset trust to the public last year and will distribute another 100 million yuan (US$12 million) real estate trust on Tuesday.

The new trust project, with a term of two years and an expected 4.9 per cent annual return for buyers, is expected to raise 100 million yuan (US$12 million) to finance the Flower City real estate project in southwestern Beijing.

Wang Yanbai, deputy general manager of Beijing Wannianhuacheng Real Estate Development Co, the developer of Flower City, said that more real estate developers are seeking investment trusts to raise funds since the central bank tightened credit for the sector last year.

The company is also planning a listing in Hong Kong or the mainland in three years, Wang said. But its present focus is to effectively run the first project.

Risk management, however, has been a major concern for such trust projects; whether developers can use the money well, maintain sufficient cash flow and realize the target of housing sales will decide whether they can pay back the borrowed money and interest in time, experts said. It is the same issue for other types of investment trust projects.

So far, most of the trust projects issued in China over the past two years have received warm market response, which reflects the growing demand among investors for more diversified investment tools, said Mao Zhirong, a researcher with the research institute of the Shenzhen Stock Exchange.

Low bank deposit interest rates and surging consumer prices also push more people to seek new investment opportunities.

Under such circumstances, real estate investment trusts, for example, will continue to develop, but the potential risks also require more attention, Mao said.

But instead of setting many boundaries and limits for the trust companies, regulators should introduce the market mechanism for innovation and encourage competition in the sector, he said.

Meanwhile, lured by the market potential in China, foreign companies are also heading in the trust business.

Insiders said that the State Council is reviewing applications from China National Cereals, Oils & Foodstuffs Import & Export Corporation, one of the biggest trade companies in China, to set up a joint venture trust and an investment company with a trust company in the United States and a financial institution in Hong Kong.

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