Recently, Jason Bedford, who worked as an analyst at Bridgewater Associates and UBS Group, and was accurately the first time four years ago that the turmoil of China's regional banks is now worth 2 to ChinaThe $9 trillion trust industry has issued a similar warning. He noted that many trust companies are "in deep distress and may be exposed to capital solvency risks".
Bedford had carefully analysed nearly 250 financial statements to warn in advance that China's smaller banks were in trouble. He has now made a similar analysis of China's trust companies, a tip of the country's shadow banking sector that is able to offer returns far higher than bank deposits.
According to his calculations, 14 of the 55 trust companies that issued financial statements in 2022 reported non-performing assets and specifically mentioned assets that accounted for more than one-third of their total assets. He said there were 13 more companies that didn't report and could also be in trouble. In addition, cracks have been shown in the trust industry, which is lending heavily to troubled property developers. Earlier this year, Zhongrong International Trust failed to make payments, and in May, New China Trust became the first company in the industry to go bankrupt.
Bedford noted that while Zhongrong International Trust did not show typical stress indicators, its troubled assets accounted for only 3.3 percent of total assets last year7%, but the problem appears to stem from the broader CIIC conglomerate and its possible role in raising financing, possibly rolling other products.
In recent years, CIIC and its affiliates, especially Zhongrong, have continued to provide financing to troubled developers and acquire corporate assets, including China Evergrande Group, even as rival trust companies cut risk. Compared with banks with a relatively uniform business model, trust companies are more diversified in business.
For China's financial markets, this trend poses a serious challenge. Problems with trust companies not only affect financial stability, but can also have a knock-on effect on the economy as a whole. For ordinary investors, this is a reminder that they need to be more cautious when investing in trust products, especially in the current economic situation.
* and the challenge for regulators is how to strengthen the regulation of the trust industry to avoid a potential financial crisis. This requires finding a balance between ensuring the stability of financial markets and promoting healthy development. In addition, it is a reminder to other financial institutions to strengthen risk management and asset quality control.
Overall, the current challenge facing China's trust industry is a major test of the stability of the entire financial system. It's not just a question of a single industry, it's a question of how China manages and controls risks across the financial system. In the future, we will pay close attention to the development of the trust industry and how it will affect China's macroeconomic and financial markets.