Chinese Trusts Worth $3T Abandoning Beijing
Chinese trusts valued at $3-trillion are abandoning China itself, Vikrant Thardak reported for the India-based TGIGlobalNews.com.
Photo Insert: An aerial view of a real estate development project in China
Thardak said the Chinese real estate sector has grown out as a giant slayer of Chinese investors and these trusts fear that staying in Beijing or investing in manufacturing, the services sector, or in the financial would be very risky.
“Don’t be mistaken, Chinese trust companies are in no manner similar to those we see in the West. Chinese companies are more involved in the shady part of the financial sector, also called Shadow Banking,” Thardak explained.
“They can do what a bank can’t. Banks are restricted from making certain investments, but such conditions don’t apply to trust companies. They can even invest in high-risk companies. Similarly, financial institutions seeking to make under the table off-balance-sheet investments also find it convenient to invest in such trust companies.”
The trusts bear the risk themselves and invest in a wide range of assets including, bonds, stocks, unlisted companies, and local government financing vehicles. Experts believe that out of $2.5 trillion in money entrusted to trust companies, 13% to 15% goes straight to China’s real estate sector.
Annual reports of trust firms show that by the end of 2020, property investments accounted for more than 50% of a few trust firms’ businesses.
“So, as China’s real estate sector seems to be living on borrowed lungs, China’s trust companies have also started gasping of late."
The fall of real estate giant Evergrande came as a turning point for the trust industry, with some trust products that had invested in the developer running default by the end of October, including those of Citic Trust, The National Trust, China Minsheng Trust, and Everbright Xinglong Trust.