Shadow Banking Crackdown Leads to Contraction in Trust Firm Assets

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China’s crackdown on shadow banking activity is proving effective in some spheres, with the latest official data pointing to a decline in assets held by Chinese trust companies alongside lending.

Figures from the China Banking and Insurance Regulatory Commission (CBIRC) indicate that outstanding total assets of the Chinese trust sector have seen a 3.18% decline since the start of the year, falling to 25.41 trillion yuan as of the end of April.

Trust loans have fallen by 11.11 billion yuan since the start of the year to 8.39 trillion yuan as of the end of April.

Trust firms are considered a key part of Chinese shadow banking, given that banks and other financial institutions often use them as a “conduit” to dodge regulatory oversight, and channel funds to forbidden areas such as property development.

According to CBIRC there has been a significant reduction in the use of multi-tiered financing structures that are designed to conceal the identities of final borrowers and lenders.

Domestic media reports indicate that CBIRC recently stepped up on-site inspections of trust companies in order to better tackle these conduit operations.

Despite the marked decline in risky loans, CBIRC said that trust firms saw a year-on-year grown in revenue as well as stable profitability.

CBIRC said that it would continue to heighten its monitoring of the trust sector via on-site inspections, policy guidance and ratings, in order to prompt companies to “shift from high-speed growth to high-quality growth, and vigorously support the development of the real economy.”

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