Defective market structure overshadows China’s trust industry
March 29, 2014 Leave a comment
Defective market structure overshadows China’s trust industry
Staff Reporter
2014-03-20
Due to the reliance of the Chinese economy on the momentum deriving from investments and exports, the country’s trust industry has concentrated the assets under their custody on investing in fields featuring high security and high yields, such as the government sector and infrastructural facilities. The concentrated investments, however, have led to excessive supply and rapidly rising risks, overshadowing the industry’s development prospects, according to the Chinese-language Economic Observer.
The concern is highlighted by a repayment crisis afflicting the mining and realty trusts, the paper said. Another embodiment of the crisis is the serious municipal debts, which have forced many local governments to slash public outlay.
The contraction in public outlay is likely to bring about downside risks for an investment-driven economy and a slackened economy will dampen the realty market, which will negatively impact many municipal governments due to their heavy reliance on public land sales, forcing them to depend even more on financial transfers from the central government.
Although financial transfers from the central government have declined from the peak of 46.7% in 2009, the figure still stayed at a high of 42.6% in 2012, the paper said, while many provincial or city governments continue to rely heavily on financial support from the central government to sustain normal operations.
According to a study released by the Australia and New Zealand Banking Group (ANZ), many municipal governments in central and western China may suffer a shortfall without central government support, equivalent to their financial income, or 8.7%-14.7% of GDP in central provinces and cities and even higher in the country’s western region.
Meanwhile, some municipal governments have even resorted to private loans, aggravating their finance due to the heavy interest burden associated with shadow banking.
As a result, in 2014 trust firms and local loaning platforms in central and western China may face heavy debt repayment pressures, especially those in Guizhou, Yunnan, Tibet, Qinghai, Ningxia and Xinjiang, the paper said.
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