Defective market structure overshadows China’s trust industry

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.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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