China's trust funds seek new development modes

BEIJING－The steel sector might not be a good investment target at first glance given its price swings and the campaign to cut overcapacity, but some financial institutions are hoping to strike gold in the middle of the market's upgrading.

Bohai International Trust Co Ltd has launched a trust product in partnership with Zhaogang.com, a leading digital B2B platform in China that brings together steel producers and consumers. They will offer loans to steel purchasers to encourage efficient deals on the platform.

Over 9,000 firms along the steel industrial chain have benefited from the trust product, which leverages Zhaogang.com's matchmaking services to enhance the steel sector's efficiency.

The trust firm has invested over 330 billion yuan ($47 billion) in manufacturing, infrastructure, energy conservation, environmental protection, industrial upgrading and other real economy fields, said company president Ma Jianjun.

China's trust fund flows are shifting direction as the country keeps a tight rein on speculation and looks to raise investment in the real economy.

Chinese trust fund managers are also seeking new development models to invest in small and private companies to support economic growth, according to business leaders.

The country's financial regulators have been tightening rules to control systemic financial crisis, reduce the leverage rate and channel money into the real economy. Given the challenges, trust firms are increasing investment into infrastructure construction, public facilities, and healthcare, said Yan Guijun, chairman of the board of directors of China Everbright Trust.

"The company is developing new financial products to invest in private, small-and medium-sized companies," Yan said.

At this time, about 450 billion yuan of funds managed by the China Everbright Trust have gone into privately owned companies, accounting for more than 70 percent of the total trust fund it owns. Nearly 90 percent of the investment targets are small and micro companies, the chairman said.

Yan said a key business the company plans to develop would be asset securitization products.

"Trust fund companies usually have advantages of dealing with bankruptcy cases, as they have bankruptcy isolation function. Thus, they have the comparative advantage of participating in the asset securitization business."

Asset securitization products can also help companies in the real economic sector to reduce financing costs, he added.

China Everbright Trust has promoted asset securitization financial instruments such as asset backed securities and the scale of the property right trust has reached 36.6 billion yuan.

At the end of September, the total entrusted assets balance of the country's 68 trust firms stood at 22 trillion yuan, down by 2.39 percent quarter-on-quarter, data from the China Trustee Association showed.

The trust fund balance in the real estate sector shrank by 148.07 billion yuan at the end of September compared to the end of June, the first quarter-on-quarter drop in over three years.

Industrial and commercial firms remained the biggest destination for trust funds flows. During the first three quarters, the sector saw new trust investment of 1.09 trillion yuan, making up about one-third of the overall new trust investment during this period.

The basic industries registered new trust investment worth nearly 140 billion yuan in the third quarter, up over 60 percent year-on-year.

"Serving the real economy is the trust sector's primary role," said Lai Xiufu, head of the trust institution supervision department with the China Banking and Insurance Regulatory Commission.

Lai said despite enhanced regulation, the country's economic shift is "creating many fresh opportunities for trust firms" such as investing in the green sector and expanding direct investment.