China sets up fund to support struggling shadow banking trust firms

BEIJING – Working out how best to contain China’s spreading shadow-banking system has been a high priority for China’s top regulators since it became a serious issue in 2010. The latest plan involves establishment of a fund to support troubled trust firms as repayment risks continue to accumulate.

The rules of the fund, jointly issued by the China Banking Regulatory Commission and the Ministry of Finance, state that “each trust firm is required to contribute 1% of their net assets to the fund, while each trust product will pay 1% of the money raised”, a statement released on Monday by the two organisations reads.

Following implementation of a stricter approval process on new products, trusts, and high-yield investments in an industry valued at USD 2.1 trillion grew at the slowest pace during the third quarter of 2014 since shadow banks rose to prominence a few years ago.

The protection fund is designed to assist trust firms that have been restructured due to issues of insolvency or impending bankruptcy, firms that have shut down due to illegal operations, and those suffering from short-term liquidity difficulties. www.webershandwick.cn (ATI).