Abstract
This Chapter first explains the potential problems of Chinese trust industry from the perspective of both the service providers and the consumers. In this respect, it analyzes the unsustainability of current trust business model, and also illustrates the demand of asset management services, especially family trusts, for Chinese HNWIs. Then this Chapter points out that the Chinese trust network is transforming towards a sparse network. Actors within a sparse network are less likely to have social capital that they can rely on to achieve cooperation. In a sparse network, lack or low degree of mutual trust between actors within the network is more likely to happen. Consequently, trust business in China is facing a dilemma, which is also analyzed in this Chapter. On one hand, there is an increasing demand of trust products for HNWIs; on the other hand, the industry is stepping into the decline stage of the business life cycle. In view of this, this chapter provides a possible justification of Article 2 of Chinese Trust Law; then it explains the reasons why the ambiguity of trust law regarding the ownership of trust property might matter in the near future. Following this is a suggestion on possible solutions that could be provided by the trust law for the potential trust business dilemma.
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Notes
- 1.
Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 2.
Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 3.
Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 4.
In 2007, CBRC issued to regulations related to trust companies: Measures for the Administration of Trust Companies; and Measures for the Administration of Trust Companies’ Trust Plans of Assembled Funds.
- 5.
Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 6.
In December 2009, CBRC issued the “Notice on Further Regulation of Bank-Trust Cooperation”, prohibiting the use of WMPs by way of single-unit trust, the main form of bank-trust cooperation.
- 7.
Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 8.
In August 2010, CBRC issued the “Notice on Regulation of Cooperation between Bank WMPs and Trust Funds.”
- 9.
For example, the risk capital weighting for securities companies in conduit business is around 2%, in contrast to roughly 10% in trust companies. By June 2013, the asset under management of securities companies had reached CNY 3.4 trillion, the majority of which came about as a conduit for the banks’ wealth management products. See Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013, p. 24. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 10.
Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013, p. 24. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 11.
Wildau et al. (2013) China Pilot Scheme Aims to Shatter Assumption; Investments Are not Guaranteed. http://www.reuters.com/article/2013/10/10/us-china-banks-debt-idUSBRE99915D20131010. Accessed 20 April 2016.
- 12.
Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013, p. 24. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 13.
Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013, p. 37. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 14.
[Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013, p. 37. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015].
- 15.
For conduit business, see explanation in Sect. 6.1.1.
- 16.
Tang (2014).
- 17.
Forbes China and CreditEase, 2014 Zhongguo Dazong Fuyu Jieceng Caifu Baipishu (2014 Chinese Mass Affluent Report). http://www.forbeschina.com/upload/Bj9O8CwBlZ.pdf. Accessed 6 May 2015.
- 18.
Bain & Co., China Merchant Bank (2013) China private wealth report 2013. http://www.bain.com/Images/2013_China_Wealth_Report.pdf. Accessed 6 May 6 2015.
- 19.
According to the “China Private Wealth 2013 Report,” HNWIs refer to individuals with at least CNY 10 million (approximately $1.6 million) in investable assets. Ultra-HNWIs are defined as individuals with at least CNY 100 million (approximately $16 million) in investable assets.
- 20.
(Bain & Co., China Merchant Bank (2013) China private wealth report 2013. http://www.bain.com/Images/2013_China_Wealth_Report.pdf. Accessed 6 May 6 2015).
- 21.
(Bain & Co., China Merchant Bank (2013) China private wealth report 2013. http://www.bain.com/Images/2013_China_Wealth_Report.pdf. Accessed 6 May 6 2015).
- 22.
(Bain & Co., China Merchant Bank (2013) China private wealth report 2013. http://www.bain.com/Images/2013_China_Wealth_Report.pdf. Accessed 6 May 6 2015).
- 23.
For the reference of “implicit principal guarantee,” see Sect. 6.2.2.
- 24.
Bain & Co., China Merchant Bank (2013) China private wealth report 2013. http://www.bain.com/Images/2013_China_Wealth_Report.pdf. Accessed 6 May 6 2015.
- 25.
(The Boston Consulting Group and CCB Private Bank (2011) China wealth 2011—wealth markets in China: Seeking the opportunity to lead. http://www.bcg.com.cn/en/files/publications/reports_pdf/BCG_China_Wealth_2011_ENG_Final.pdf. Accessed 6 May 2015).
- 26.
Chinese High Net Worth Individuals Shift Wealth Management Focus from Growing to Preserving Assets; Overseas Diversification on the Rise, Finds New China Private Wealth Report (May 7, 2013). http://www.bain.com/about/press/press-releases/chinese-high-net-worth-individuals-shift-wealth-management-focus-from-growing-to-preserving-assets.aspx. Accessed 11 May 2015.
- 27.
Gao (2014).
- 28.
Gao (2014).
- 29.
Article 13 of the Constitution Law of China was amended in 2004 as follows.
[Protection of Private Property]
(1) Citizens’ lawful private property is inviolable.
(2) The State, in accordance with law, protects the rights of citizens to private property and to its inheritance.
(3) The State may, in the public interest and in accordance with law, expropriate or requisition private property for its use and shall make compensation for the private property expropriated or requisitioned.
- 30.
Article 66 of the Property Law of China provides that.
The legitimate properties of individuals shall be protected by law and shall not be occupied and damaged by any institution and individual.
- 31.
(Bain & Co. and China Merchant Bank (2013) China private wealth report 2013. http://www.bain.com/Images/2013_China_Wealth_Report.pdf. Accessed 6 May 6 2015.).
- 32.
(Bain & Co. and China Merchant Bank (2013) China private wealth report 2013. http://www.bain.com/Images/2013_China_Wealth_Report.pdf. Accessed 6 May 6 2015).
- 33.
There has long been a dearth of onshore family trust service in China until the launch of family trust products by three financial institutions in 2013. They were Ping An Trust Co, in partnership with Ping An Bank; Beijing International Trust Co in partnership with Beijing Bank; and China Foreign Economy and Trade Trust Co. in partnership with China Merchants Bank. See Ho (2014).
- 34.
Gao (2014).
- 35.
Mayhew and Levinger (1976).
- 36.
See Sect. 5.5.
- 37.
See the interview findings in Sect. 5.5.
- 38.
See e.g. Yuan (2014); China Trust Sector Reports Slower Growth; Default Risks in Focus (Feb. 13, 2014), http://www.cnbc.com/id/101416270. Accessed 15 May 2015; China Trust ‘Timebomb’ Ticks as Credit Suisse Sees Rejig (July 4, 2014), http://www.bloomberg.com/news/articles/2014-07-03/china-trust-timebomb-ticks-as-credit-suisse-sees-rejig. Accessed 15 June 2015.
- 39.
China Trust Industry Growth to Slow by Half, Huabao Says (Aug. 2, 2013), available at http://www.bloomberg.com/news/articles/2013-08-01/china-trust-industry-growth-to-slow-by-half-huabao-says. Accessed 23 June 2015.
- 40.
China Trustee Association, Main Business Data of Trust Companies (1st Quarter 2014) (May 6, 2014), http://www.xtxh.net/xtxh/statisticsEN/20044.htm. Accessed 15 April 2015. China Trust Asset Growth Slows in Shadow Banking Campaign (Bloomberg, Aug. 12, 2014), http://www.bloomberg.com/news/articles/2014-08-12/china-s-trust-asset-growth-slows-amid-shadow-banking-crackdown. Accessed 11 May 2015.
- 41.
- 42.
Steinmetz (1969).
- 43.
Greiner (1972).
- 44.
Hanks et al. (1993).
- 45.
Rogerson (2010).
- 46.
As professionals in some trust companies predicted, banks, insurance companies, wealth management institutions and large corporations are the key potential key institutional investors for trust products. See Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 47.
(Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015).
- 48.
Historically, examples of alternative assets include real estate, commodities, as well as rare coins and stamps, artwork or trading cards. More recently, the term of “alternative assets” has also come to be used to refer to other institutional asset classes including private equity, venture capital, trading strategy indices, and hedge funds.
- 49.
Ping’an Trust and McKinsey (2013) The coming transformation of China’s trust industry: China Trust Industry Report 2013. http://www.mckinseychina.com/wp-content/uploads/2013/12/mckinsey-china-the-coming-transformation-of-chinas-trust-industry.pdf?5c8e08. Accessed 21 Feb 2015.
- 50.
McKinsey (2014) Global Wealth Management Survey 2014: An attractive Sector in Transition. http://www.mckinsey.com/~/media/mckinsey%20offices/france/pdfs/global_wealth_management_survey_2014.ashx. Accessed 29 August 2015.
- 51.
See Sect. 2.1.4 for the detail of legislation procedure of Chinese Trust Law.
- 52.
Ho (2012), pp. 200–202.
- 53.
Bian (2002).
- 54.
Jiang (2010), p. 415.
- 55.
Du (2001).
- 56.
See He (2005), p. 53.
- 57.
See Sect. 3.2.
- 58.
See Sect. 2.1.1.
- 59.
In current Chinese trust practice, there is no registration of “transfer for the purpose of trust”, due to the lack of a comprehensive trust registration system. The Chinese authority is organizing the establishment of trust registration system in recent years.
- 60.
Gao (2014).
- 61.
See Chap. 6.
- 62.
Bachmann and Inkpen (2013), p. 459.
- 63.
Potter (2002), p. 182.
- 64.
Potter (2002), p. 182.
- 65.
Bachmann and Inkpen (2013), p. 460.
- 66.
- 67.
Ho (2014).
- 68.
Walker et al. (2013), pp. 176–177.
- 69.
Walker et al. (2013), p. 177.
- 70.
Easley and Kleinberg (2010), p. 60.
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Meng, Z. (2017). The Chinese Trust Industry in the Near Future Towards a Sparse Network: From Guanxi to Institutionalized Trust?. In: Ownership of Trust Property in China . Perspectives in Law, Business and Innovation. Springer, Singapore. https://doi.org/10.1007/978-981-10-5846-2_7
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