Analysts say investors should get used to trusts failing to make payments on products as Chinese authorities stop rescuing companies.
In the past, the government has told state banks to rescue trust investors. But this year, regulators are expected to allow more of such companies to default on bank loans, bonds and credit from the country’s 61.3 trillion yuan ($8.9 trillion) shadow lending business, which includes trusts and wealth management products, say experts.
«It’s impossible to not have defaults as they make a break with guaranteed payments,» said Xie Yunliang, chief macro-analyst at Minsheng Securities, who was quoted in «Financial Times» (behind paywall). He is referring to the expectation among investors that all products would eventually be backstopped by the government, but this is already changing.
Case Study
Anxin Trust has missed payments totaling 11.8 billion yuanfor 25 trust products earlier this year, but this would not be the last time investors hear from them. The company has been forced to publicly document its default because it is listed on the Shanghai stock exchange.
The situation provides a rare glimpse into the factors leading up to failed trust products, which include giving loans to an acquisitive property group. The trust company’s shares dropped more than 9 percent on Tuesday after it said its parent company’s shares had been frozen by a court in Shanghai.
Lack of Public Disclosure
In May, Bohai Trust was revealed to have defaulted on a product that had been bought by a bank in Hunan province but news of the incident circulated only after the bank sued. A few other trust defaults have surfaced in the local media this year but often only when clients raise complaints, especially on chat groups.
«There are no public disclosure requirements for trusts,» said David Yin, a vice-president at Moody’s. «Sometimes media gets information from investors that suffer losses but there’s not much information outside of this.»
