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Comments on the Development of China’s Trust Industry in the First Quarter of 2016
by Professor Xing Cheng, Renmin University of China
2016-06-16 Page View:

2016 is the debut year of the 13th Five-year Plan. Against the background of a slowdown in the international economic growth and the supply-side structural reform, an important issue faced by China's trust industry is how to adapt to China's economic new normal, explore sustainable development road and find appropriate niche. Each index in the Main Business Data of Trust Companies in the first quarter of 2016 released by CTA suggests that China's trust industry has not only forged ahead with great determination in the supply-side reform, but also has actively explored market opportunities and improved active management capabilities during the transition of domestic trust market. China’s trust industry has also, at the same time, dedicated itself to transforming from the extensive quantity expansion to intensive quality advancement while accelerating its business transition in terms of the fund supply and demand match.

I. New normal: Growth pace of the trust assets under management goes back to rational range

A. Trust assets: A slowdown in growth

At the end of the first quarter of 2016, trust assets under management amounted to 16.58 trillion Yuan, with an annual growth of 15.06% from 14.41 trillion Yuan at the first quarter of 2015, up by 1.72% from 16.3 trillion Yuan at the end of 2015. However, growing pace is slowing down. In fact, since the second quarter of 2013, trust assets have been remaining weakening growth, despite a short time of rebound in the second quarter of 2015.   

B. Non-trust assets and equity: Optimizing structure

At the end of the first quarter of 2016, total non-trust assets reached 460.918 billion Yuan, growing by 25.58% compared with 367.033 billion Yuan at the end of the first quarter of 2015. If comparing with 462.328 billion Yuan at the end of 2015, non-trust assets presented negative growth.  

Investment has always been the main type of non-trust assets, reaching 343.399 billion Yuan at the end of the first quarter of 2016, up by 33.28% compared with 257.65 billion Yuan at the end of the first quarter of 2015, accounting for 74.5%. Both the size and growth pace of loans kept falling. In the first quarter of 2016, loans merely achieved 33.516 billion Yuan, with a reduction of 4.06% from 34.936 billion Yuan in the fourth quarter of 2015 and its proportion in non-trust assets was 7.27%, decreasing from 12.5% of the first quarter of 2015. Monetary assets reduced as well, totaling 54.322 billion Yuan, plunging as much as 25% from 72.56 billion Yuan at the end of 2015.

Equity reached 386.019 billion Yuan in the first quarter of 2016, approximate to 381.869 billion Yuan in the fourth quarter of 2015, growing by 17.16 percentage points comparing with 329.468 billion Yuan in the first quarter of 2015.

Paid-up capital maintained an upward tendency, reaching 170.935 billion Yuan in the first quarter of 2016, with growing pace easing while proportion in equity slightly rising.

Trust compensation provision reached 16.106 billion Yuan, growing by 31.43% annually.

C. Risk projects: With systemic risks in the trust industry under control, isolated risks should never be overlooked

There were 527 risk projects in the first quarter of 2016, totaling 111.019 billion Yuan, increasing by 13.719 billion Yuan from the end of 2015. Although the volume and size of risk projects slightly rising, the size of total trust assets expended as well, turning out that non-performing assets only accounted for 0.66%. Risks generated from collective pecuniary trust accounted for 53%; from single pecuniary trust accounted for 45%; from property trust accounted for 2%.

II. New challenges: Core KPIs are declining

A. Operating performance

Operating income totaled 21.499 billion Yuan in the first quarter of 2016, down by 6.51% compared with 22.996 billion Yuan in the first quarter of 2015.

Total profits of trust industry were 13.984 billion Yuan in the first quarter of 2016, with a reduction of 17.41% compared with 16.931 billion Yuan in the first quarter of 2015.

Profits of per staff member reached 0.5916 million Yuan.

B. Profitability of trust assets

In the first quarter of 2016, the number of liquidated trust schemes was 1,600, the average annualized return rate to trustees was 0.50% and the real annualized return rate to beneficiaries was 8.18%.  

III. New Development: Trust Businesses are gaining momentum

A.    Investment function

In terms of trust functions, financing trust, investment trust and non-discretionary trust represented one third each in China’s trust assets by the end of 2014. But shortly afterwards, this stalemate was broken down in 2015. At the end of 2015, financing trust assets decreased to 3.964807 trillion Yuan, accounting only for 24.32%, non-discretionary trust assets increased steadily to 6.307111 trillion Yuan, accounting for 38.69% and investment trust assets kept growing, reaching 6.031702 trillion Yuan, accounting for 37%. This trend continued in the first quarter of 2016: Financial trust assets totaled 4.120935 trillion Yuan, accounting for 24.85%, a tiny rise of 0.53 percentage points from the end of 2015; Investment trust assets totaled 5.510215 trillion Yuan, accounting for 33.23%, down by 3.77 percentage points from the end of 2015; Non-discretionary trust assets totaled 6.949845 trillion Yuan, accounting for 41.91%, up by 3.22 percentage points from the end of 2015.

B. Sources of trust funds

The proportion of collective pecuniary trust kept stable, standing at 33.01% in the first quarter of 2016.

The proportion of single pecuniary trust has been declining, taking 56.56% in the first quarter of 2016.

The proportion of property trust presented progressive trend, reaching 10.43% in the first quarter of 2016.

C. Investment targets

In the first quarter of 2016, industrial and commercial enterprises, financial institutions, securities, infrastructures and real estate were still the major investment targets, however, funds flow to each area changed.

Industrial and commercial enterprises were the no.1 welcoming targets as usual, attracting 3.52 trillion Yuan at the end of the first quarter of 2016, with proportion reaching 23.74%.

Financial institutions was second appealing, attracting 2.75 trillion Yuan, taking over 18.49% of total pecuniary trust.

Funds invested into securities amounted to 2.69 trillion Yuan, up by 1.57 percentage points in size, making securities the third welcoming target.

Infrastructure investment was 2.68 trillion Yuan in the first quarter of 2016, accounting for 18.02%.

Real estate was the no.5 welcoming area. In the first quarter of 2016, investment in real estate totaled 1.29 trillion Yuan, accounting for 8.71%, reducing 1.22 percentage points in proportion compared with 9.93% in the first quarter of 2015.

IV. New opportunity: Hotspots and development trend

A.    Industrial adjustments are promoted steadily

The statistics from the National Bureau of Statistics shows that China's GDP in the first quarter of 2016 amounted to 15.852.6 trillion Yuan, with an annual increase of 6.7% at comparable prices. In light of the sluggish international economic growth, annual growth rate of 6.7% stands to reason. With the major projects as planned in the 13th Five-year Plan implemented, it is believed that, the probability that China's economy ushers steady growth is big and the economic foundation is expected to regain strength. Trust assets are heavily invested into the real economy, accounting for almost 80%. Therefore, the performance of real economy has a significant impact to a large scale upon the sound development of trust industry. It is predicted that trust industry will step into steady development stage during the last three quarters of 2016.

B.    Risk management becomes themes

The supply-side reform leads current economic development and economic new normal is characterized by the slowdown of economic growth. Although the overall risks are under control, high alert for diversified economic risks featuring high leverages and bubbles should be continuously kept. The rise of risky trust projects in terms of volume and size rings alarm bell to the industry, risk prevention and management will be everlasting stresses.   

C. Conventional industrial trust businesses restore new momentum

Firstly, infrastructure trust business will obtain steady progress. This business has always been the major type of trust businesses. National Plan on New Urbanization (2014 - 2020) announces that the urbanization rate will be increased by 5% within the next five years and about 100 million emigrant workers and other permanent residents become urban residents, thereby bringing in large amounts of infrastructure investment opportunities. There might emerge an extensive participation space for trust investment in 2016.

Secondly, in the context of the destocking, real estate trust will achieve further progress. Important measures have been put forward by the central authorties to reduce excessive stockpiles, including speeding up the urbanization of migrant workers, establishing an integrated housing system combing purchase and rental, encouraging real estate development enterprises to reduce housing prices and merger and cancelling outdated restrictive measures, etc. It is predicted that due to the highly integration feature of real estate business and financial services, the real estate trust will be one of the major type of business for China's trust companies in 2016.

D. Achieving sustainable development by further exploring the nature of trust through consistent innovation

Great progresses have been made in the innovation and transformation of trust businesses in the first quarter of 2016. With China’s financial reform and innovation continuously intensified and the investment environment consistently improved, financing demands are developing towards further diversification. In 2016, with the effective supply in trust industry increased, emerging trust business such as internet trust, family office, consumer trust, charitable trust and QDII will witness great breakthroughs.