Insight
Trust sector scale grows 7-fold in the past five years
Last Updated:2013-03-08 17:05 | CE.cn
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By Chang Yanjun


In 2012, the volume of trust assets of the trust industry had maintained the trend of continuous and rapid growth.


 "As of the end of 2012, asset volume of China's trust industry had exceeded RMB 7 trillion Yuan, growing during the past five years by more than 7 times over the RMB 0.95 trillion Yuan in 2007". According to Xing Cheng, executing director of the Trust and Fund Research Institute of Renmin University of China, the current achievement of the trust industry is attributed to the regulatory policies that keep pace with the time and trust companies' forward-looking market competition ideas, as well as to trust company's making full use of the unique functionality and advantages of the trust system and continuing to release the value of the system; meanwhile, it is also the result of the full integration of the three market resources of currency, capital, and entity and the flexible application of the three investment vehicles of creditor's right, stock right, and property rights. 

 


More visions needed


The trust industry still needs to keep up with other financial institutions in terms of research effort in the macro economy and investment in overall business R&D, and more visions are needed.


Nonetheless, after ten years of rapid growth, the trust industry is now facing some development problems and potential risks.


"The risks of the individual cases as exposed in real estate trust business are just some representations; some potential substantial risks, if not treated seriously and defused in a timely manner, will accumulate and deteriorate overtime until they finally explode", said Xing Cheng, who points out that under such circumstances trust companies should solve existing or potential risks in a timely manner and prevent them as soon as possible, such risks including the risks of misjudging the economic cycle, retarded professional capacity, serious unbalance of organizational structure, rigid corporate policy, and excessive incentive.


In Xing Cheng's view, prevention of the risk of misjudging the economic cycle is particularly important, because the development cycle of the trust industry is highly correlated with the cyclic change of the macro economy. The trust industry's correlation with the cycle of the macro economy, be it direct correlation or reverse correlation, is tighter and more sensitive than that with other industries. For years, trust companies have long been exploring the market, and its knowledge of the micro operation of the market is better than other institutions; nonetheless, research on the cycle, policy, conditions, and trends of the macro economy has always been the short slab of trust companies. The trust industry still needs to keep up with other financial institutions in terms of research effort in the macro economy and investment in overall business R&D, and more visions are needed.


"China's trust industry is now at the crossroads of reform, requiring not only the space to open up its business, but also corresponding system arrangement such as risk prevention, risk control, risk resolution, and risk mitigation". Xing Cheng suggests that the trust industry should, on one hand, accelerate reform and improve self-management capability, and on the other hand, educate investors in a systematic and continuous manner so that the trust industry can truly achieve the ideal state of "buyers should be cautious to enter the investment market that has certain risks and should assume all liabilities by themselves".


Seize the opportunities amidst financial reform


Considering that their clients are mostly high-end clients, trust companies should achieve differentiated management of none-restrictive investment as soon as possible and provide customized service to clients with high net asset value.


The year 2012 has been called a year when "heroes in China's asset management market emerged", with securities traders innovation, loosing up of funds, opening up of insurance, breakthroughs in futures, and legislation on private funding...... The diversified structure of China's financial market has received recognition from regulatory departments and protection by relevant laws and regulations. In the future, financial institutions in China's financial market, including the trust industry, will find the presence of one another within themselves and overlapping and integrated business in their competition and transactions. 


"All this indicates the pressing needs for the comprehensive operation of China's financial institutions and the eventual goal of mixed operation management", said Xing Cheng.


In this year, trust companies, as professional assets managing institutions and financial institutions, have apparent comprehensive advantages and unique competiveness. 


"In the diversified financial market, the market keenness, market judgment, and market adaptability of the trust industry is unrivaled by other financial institutions". According to Xing Cheng, after years of hard work, the trust industry has now established a reputation of controllable risk and high returns and its products have been well received, and a stable high-end clientele of sufficient size have been formed.


Xing Cheng also believes that trust companies, considering that their clients are mostly high-end clients, should achieve differentiated management of none-restrictive investment as soon as possible and provide customized products and service to clients with high net asset value, making use of the advantage of cross-market operation and multiple tools to meet the needs of more investors.


"Looking ahead at the focus of financial system reform in 2013, the trust industry may make use of its advantages and characteristics with its flexible vehicles and multiple tools to make bold experiments and exploration in the interest rate liberalization reform". Xing Cheng suggests that, as a matter of fact, in the forming process of the use price of trust capital, trust companies, in their practice, are already exploring innovative paths and models for the liberalization of interest rate, which will create conditions for the deeper reform of China's financial system in the future.  

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