Since 2007, China's rust industry has been undergoing rapid growth and expansion, until the year of 2014 when it slowed down its pace and embarked on a new journey to advance the development transition based on an integrated blueprint. Major business data of trust companies at the end of March of 2015 released by China Trustee Association showed that, the trust industry has come to a stable stage. While at the same time, its overall operating performance rallied, structural adjustments have born welcoming results. The investment function has become more prominent and the capability of active management has been heightened. Against the background of the more intensive competition in the assets management sector and the new normal economy, the trust industry has abandoned the old development mode which it purely focused on the speed of business expansion.

I. From very high speed growth to medium-high speed

A. Trust Assets

At the end of the first quarter of 2015, trust assets under management totaled 14.41 trillion Yuan, with a yearly growth of 22.85%. Compared with 13.98 trillion Yuan at the end of 2014, the quarterly growth rate had risen by 3.08%. Both growth rates reflected a slowdown in growth pace of trust assets.

B.Non-trust Assets and Equity

At the end of the first quarter of 2015, total non-trust assets reached 367.033 billion Yuan, achieving a steady performance, growing by 22.96% compared with the same point of 2014. Quarterly growth rate remained at approximately 20% to 30%.

Investment as one of the main types of non-trust assets, accounted for more than 50% in total non-trust assets annually over each of the past four years. Investment reached 257.650 billion Yuan at end-March of 2015, accounting for 70.20% with an increase of 4 percentage points from the end of previous quarter. Meanwhile, proportion of monetary assets and loans reduced. Monetary assets were 45.891 billion Yuan in total, down by 13% from the end of previous quarter, with its proportion in non-trust assets dropping from 14.69% at the end of the fourth quarter of 2014 to 12.50%. The amount and proportion of loans remained unchanged since the end of the fourth quarter of 2014. 

Net assets reached 329.469 billion Yuan, an increase of 22.75% compared with the same time of 2014. However, the growth rate had dropped by 2.37 percentage points.

Break-downs of the data on net assets: Paid-up capital was rising year by year, nevertheless, with a slowing pace and progressively shrinking proportion in shareholders' equity. At the end of the first quarter of 2015, paid-up capital reached 139.802 billion Yuan, a slight increase of 1.15 billion Yuan from the end of 2014, and its proportion was 42.43%, basically the same compared to the same point of 2014. Trust compensation provision was 12.254 billion Yuan, with the annualized growth rate of 27.40% and quarterly growth rate of 1.34%. The proportion of compensation provision in shareholders' equity increased slightly. The significant increase in trust compensation provision had been conducive for trust companies to hedge against liquidity pressure caused by risk projects.

C.Number and Amount of Risk Projects

There were 425 risk projects at the end of the first quarter of 2015, totaling 97.447 billion Yuan, rising by 19.347 billion Yuan from 78.1 billion Yuan at the end of 2014, an increase of 24.77%. The proportion of non-performing assets was small, merely 0.68% in ratio. It is believed that trust companies’ own capitals are adequate, compensation provision remains sufficient, risk-offsetting mechanisms for the trust industry and risk-management mechanisms of trust companies are steadily improving.

II. From scale-oriented to efficiency-oriented

A. Operating Performance 

Despite the significant downturn in acceleration of trust assets managed by 68 trust companies, their operating performance (including operating income, total profits and profits per staff member) made continued progress.

In terms of operating income, the operating income of the trust industry reached 22.996 billion Yuan for the first quarter of 2015, with the yearly growth of 28.72%. Compared with the annualized growth rate of 17.22% at the end of the first quarter of 2014, the growth rate had risen by 11.5 percentage points. The total profit of the trust industry achieved was 16.931 billion Yuan at the end of the first quarter of 2015, an Increase of 33.73% compared with 12.661 billion Yuan at the same period of 2014. The profits per staff member of the trust industry was 772,500 Yuan for the first quarter of 2015, a slight increase compared with 663,500 Yuan at the same period of 2014. Against the background of a slowing acceleration of trust assets, the operating performance of trust industry in the first quarter of 2015 was substantially improved, indicating a start of benign growth, which showed the effect of transition and adjustment for trust industry was outstanding, and that the connotative growth pattern needed for trust industry’s transition has initially shaped up.

B. Effectiveness in Management as Trustees

For the liquidated trust schemes, the real annualized return rate to beneficiaries had been relatively stable in recent years, between 6% and 8%. This figure exceeded the peak value of 8% at the end of the first quarter of 2015 for the first time. As historical data indicate, from 2014, the real annualized return rate to beneficiaries achieved for trustees presented a tendency of “stable rise”: 6.44% for the first quarter, 6.87% for the second, 7.92% for the third, and 7.52% for the fourth. The rate of 8.11% for the first quarter of 2015 remarkably exceeded the levels of all quarters of 2014. 

However, it is worth noting that, compared to the liquidated trust schemes, the average annualized return rate to trustees presented a tendency of continuous declining: 0.85% at the end of the first quarter of 2013, 0.78% at the end of the second, 0.76% at the end of the third and 0.71% at the end of the fourth; 0.54% at the end of the first quarter of 2014, 0.62% at the end of the second, 0.55% at the end of the third and 0.51% at the end of the fourth, and 0.40% at the end of the first quarter of 2015, which means that the trust industry still needs further transition and a longer time of adjustment.

III. From external to internal drivers

A. The function of investment was more prominent

The proportion of financing trust has been declining in recent years, and the proportion of investment trust and non-discretionary trust had been rising, forming a structure of “trisection” by the end of the fourth quarter of 2014, i.e., financing trust, investment trust and non-discretionary trust took a proportion of one third respectively (financing trust took 33.65%, investment trust took 33.70%, and non-discretionary trust took 32.65%). But at the end of the first quarter of 2015, the transient structure of “trisection” was broken, and the investment trust started to show its advantage, the proportion of which rose to 35.52%, an increase of 1.82 percentage points compared to that at the end of 2014; proportion of non-discretionary trust slightly rose to 33.16%, an increase of 0.51 percentage points compared to that at the end of 2014; the proportion of financing trust declined to 31.32%, an reduction of 2.33 percentage points compared to that at the end of 2014.

The above-mentioned change of trust business functions reflects the major tendency that trust business starts to adapt to the new changes of financial system in China actively. With the development of financial system being more and more mature, the financial development driver of China in the future will change from the deficit party to the surplus party, i.e., investment function of financial products will become more and more important. The internal driving force will be increasing investment demand by the high-net-worth clients, the robust long-term capital demand in the real economy, etc.

B.The continuously heightened active management capability

Against the background where the acceleration of trust assets has been slowing down, the operation performance of trust business still realized an improvement during the first quarter of 2015, which benefitted from the continuous enhancement of active management capability on operation strategies. Since the fourth quarter of 2013, the proportion of collective pecuniary trust in trust business had been changing its continuously declining tendency for the past few years, and realized a stable improvement. The specific proportions were respectively: 24.90% at the end of the fourth quarter of 2013, 24.97% at the end of the first quarter of 2014, 26.36% at the end of the second quarter of 2014, 29.13% at the end of the third quarter of 2014, 30.70% at the end of the fourth quarter of 2014, and even rising to 33.26% at the end of the first quarter of 2015. From the fourth quarter of 2013 to the first quarter of 2015, the proportion of collective pecuniary trust in the total trust assets rose by 8.36 percentage points.

The proportion of single pecuniary trust continued to decline since the third quarter of 2013, dropping by 11.17 percentage points compared to 60.11% at the end of the first quarter of 2015. Such decline was mainly due to the gradual shrink of the source from single large clients. The proportion of single pecuniary trust cooperating with banks had been stable, between 20% to 22% in recent years.

The proportion of property trust had been stable, at between 3%-7%. With the arrival of the time for the inheritance and increase of high-net-worth individuals, family trust started to spring up. The demand of property trust in the future will expand continuously. But the development of property trust requires to break through in aspects of trust property registration system, tax system and other superstructures, and to reduce the market transaction cost. 

C.Investment targets represented a slight change

At the end of the first quarter of 2015, 13.46 trillion Yuan of pecuniary trust were still mainly invested in five major fields, i.e., industrial and commercial enterprises, basic industries, securities investment, inter-financial institutions business and real estates. But compared with that at the end of 2014, the proportion order of the investment in these five fields changed, namely, the proportion of 16.56% of the securities investment for the first quarter of 2015 exceeded the proportion of 15.75% of inter-financial institutions business, becoming the third major assets allocation areas, indicating that the investment targets generally stayed stable, but benefited from the flexible operations of “multimode application, trans-market allocation” at the same time. Trust business made prognosis and flexible adjustment of the bull market in the first quarter of 2015, increasing the issuance of securities investment products.

Trust assets invested in industrial and commercial enterprises still remained  no. 1 in size till the end of the first quarter of 2015, reaching 3.16 trillion Yuan, however, with gradual shrinking proportion, down by 4.36 percentage points in proportion compared to 27.85% at the end of the first quarter of 2014. Basic industries were the second major investment target, totalling 2.79 trillion Yuan in terms of investment, accounting for 20.75%, representing a downward tendency in proportion. Securities investment surpassed the inter-financial institutions business, becoming the third major investment target, with 2.23 trillion Yuan in total, making annualized growth rate of 79.84%; bonds were major investment tools in the securities market, followed by stocks and funds. Inter-financial institutions business had become the fourth major investment target, and trust assets invested in this area reached 2.12 trillion Yuan, accounting for 15.75%, dropping by 1.64 percentage points in proportion. Real estates stayed as the no.5 welcoming assets allocation areas, the investment in which totaled 1.34 trillion, accounting for 9.93%.

IV. Adherence to the trust culture

In the boom and hard time over the last decade, trust companies in China have always been abide by the nature and tenet of trust, placing the maximization of the interests for beneficiaries as fundamental goal. As mentioned above, in terms of liquidated trust schemes, the real annualized return rate to beneficiaries had been relatively stable, being kept between 6% to 8%, and even created a new record of 8.11% in the first quarter of 2015. Nevertheless, the average quarterly return rate to trustees in the first quarter of 2015 only accounted for 4.93% of the average quarterly return rate to beneficiaries for that quarter. Namely, for a long time, the adherence to the principle of maximizing the best interests of beneficiaries has been the most important reason to win the trust from clients in the market, and the most fundamental guarantees of the structural adjustment and upgrading for trust industry.

However, with the accelerating process of China’s opening-up, the structural adjustments in economy and the promotion of reform in financial system, conforming to the international standards and market rules has been increasingly crucial, which indicates that, against the background of new environment, maximizing investor's return rate may no longer be the true meaning and core culture of trust, instead, the core culture should be equality and fairness, the fundamental principles of market economy. In the context of trust, equality mainly refers to the equal status of trustors and trustees in trust relationship; fairness requires the interests yield from trust properties be equivalent to risks generated. The cultivation of such culture is conducive to the sustainable and healthy development of the industry, and to get rid of current issues seriously hampering the industry's transition.

The expansion and spread of modern trust culture is in urgent need of the refinement of trust institution and clarification of trust responsibilities. We are pleased to see that, the formulation of “Eight Mechanisms” and “Eight Responsibilities” has underpinned a solid institutional foundation for the industry’s transition; the business data of trust companies at the end of the first quarter of 2015 showed that the trust industry, as a whole, has been developing steadily on the road of transition.