Cross posted from Investing in Chinese Stocks.
Flat growth in the trust industry is contractionary from the late 2013 peak. If credit elsewhere picks up it can offset the decline, but it also needs to flow to the borrowers served by the trust market. Evidence from prior months points to a more generalized slowdown in credit growth, to say nothing of the real estate sector that is in full blown contraction. The case in the news today is of a Shandong firm auctioning assets, having begun the asset sale process more than a year ago and under suspicion of embezzling funds overseas.
Data and charts from 金牛理财. Bars showed fund raising and lines the number of products.
Newly issued trusts in April raised only about 47% as much capital as in March, with the total number of trusts issued also down. For those worried about ponzi financing, note the drop in real estate trusts (the bottom darker blue section on the bars) and remember that May is a huge month for real estate trusts coming due. There is nowhere near enough capital coming into the market to replace the maturing trusts, with ¥120 billion coming due in May alone (20% of the total), but real estate trusts raised only about one-tenth of that in April. If the borrowers need to roll their debts, credit will have to come from different channels. Without credit, the selling pressure on the real estate market will intensify.
Fundraising was a bit better for newly established trusts:
The strength in fundraising was entirely due to growth in products with maturities of 1-year or less than 1-year.
Here’s the average yield and average maturity for the trust market:
Here are the different trusts by use of funds. The big growth in the “other” category is concerning.
The trust industry looks relatively healthy from the view of total assets gathered, but the numbers are not positive for the overall credit market and not good at all for the real estate market.
Defaults and forced assets sales are already underway. The case below from Shandong has misappropriation of funds as part of the story, with CITIC already having auctioned off a number of assets last year in order to extricate itself from the situation.
Shandong Real Estate Firm Auctions Off Assets (千亿地产信托兑付洪峰5月来袭 一山东房企上拍卖席)
Qingdao Real Estate Trust Crisis Feeling (青岛地产信托5月危情 中航信托或已脱身)