China’s Takeover of Trust Company Highlights Severity of Financial Crisis

A bank employee counts out 100 yuan notes at a bank in Shanghai on Aug. 8, 2018. Johannes Eisele/AFP via Getty Images

Commentary

On Dec. 22, 2020, Sichuan Trust was officially taken over by China’s regulators for restructuring, after the company was found to have violated finance-related laws and regulations, according to Chinese media reports.

Since the beginning of this year, China’s trust industry has collectively failed to repay investors.

The four pillars of China’s financial industry can provide a picture of its scale: There are about 4,500 banks, with total assets of about 309 trillion yuan ($47.29 trillion); 68 trusts, with total assets of about 21 trillion yuan ($3.21 trillion); about 200 insurance firms, with total assets about 20 trillion yuan ($3.06 trillion); and about 130 securities firms, total assets of 7.8 trillion yuan ($1.19 trillion).

Each of the 68 trust licenses is precious. At present, the controlling shareholders of the 68 trust companies are 29 local state-owned enterprises, 16 state-owned enterprises, 13 state-owned banks and financial institutions, and 10 private enterprises.

Everyone knows that China is a country under the Chinese Communist Party’s (CCP) one-party dictatorship. Companies can’t thrive without the backing of the CCP, so the 10 private trust companies are also largely backed by power figures. Sichuan Trust and Anxin Trust, the two largest trust companies, are good examples.

The actual controller of Sichuan Trust is Liu Canglong, head of the Hongda Group, who along with his cousin Liu Han founded the Hanlong Group.

Media reports pointed to Liu Han as a close associate of Zhou Yongkang, the former security czar who was purged and sentenced to life imprisonment in 2015. That year, Liu Han was sentenced to death for being involved in “mafia-style crime and murder.”

After Liu Han’s case ended, Liu Canglong also went missing several times for nearly two years, until he resurfaced in March 2019. In June 2020, Chinese finance magazine Caixin reported that the total scale of Sichuan Trust’s TOT (trust of trust, that is, a trust that specializes in investing in trust products) products exceeded 25 billion yuan, a large amount of which was misappropriated by shareholders.

As of June 2020, Anxin Trust has nearly 80 billion yuan of trust products that citizens were unable to redeem upon maturity. Its TOT products are suspected of self-financing and embezzlement by major shareholders. A Chinese finance article in May 2016 disclosed that Anxin controller Gao Tianguo shifted to business from politics in the company’s early years, and his first pot of gold was gathered in association with many corrupt officials, including Wu Qingwu, the first secretary of Cheng Weigao, the former governor of Hebei Province.

Gao’s path to success began in 1993 after he speculated on Hainan Province’s real estate; he then moved to the Shanghai capital market in 1999. Later, he established Shanghai Gorgeous Investment Development Co., which became the main platform for Gao’s subsequent capital operations. In October 2002, Shanghai Gorgeous took over the national shares of Anshan Trust from the Anshan Municipal Finance Bureau and became the largest shareholder. Anshan Trust was renamed to Anxin Trust. Gao eventually became one of the 10 largest shareholders of Shandong Hengfeng Bank and the largest shareholder of Yingkou Bank in Liaoning Province.

The collapse of these Chinese trust companies happened much like how other financial products in China have imploded: due to the lack of regulation. The TOT products that Anxin and Sichuan Trust offered reached tens of billions of yuan in value, the firms became too big to fail and were protected by the Shanghai and Sichuan governments.

Many trust companies hid their bad debts.

For example, Sichuan Trust issued nine new projects in May 2020 (one month before the Caixin report was published) worth more than 1.4 billion yuan ($214,000). On June 11, the day Sichuan Trust announced that it failed to repay its investors, the firm still successfully issued 78.3 million yuan ($11.98 million) of products. Sichuan Trust may have been able to accomplish this with the backing of local authorities.

Regulators from the central to the local level have said that the latest crackdown on trust companies demonstrates the regime’s determination to prevent financial risks. But actually, the CCP will only act when it can no longer cover up problems.

A person within the Chinese finance industry told me that he wouldn’t buy China’s trust products. The problems with Shanghai Anxin and Sichuan Trust are just the tip of the iceberg. It is no wonder that China’s trust industry is accused of being untrustworthy.

The ruling CCP itself is already known for its deceitfulness, and it isn’t to be trusted by the Chinese people or the international community.

Chen Simin is a freelance writer who often analyzes China’s current affairs. She has contributed to The Epoch Times since 2011.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.