China’s national auditor is making surprise checks in the nation’s $3 trillion trust industry which is also feeling the ripples of the ongoing property crisis.
China’s National Audit Office has been inspecting the books of at least 20 trust firms in the last month – including the industry’s top five – according to a report citing unnamed sources.
The firms are being asked to report on risky loans to developers as well as any plans for the disposal of such assets. The audit office is expected to submit its conclusions to policymakers in Beijing who could decide on future reforms for the sector. The inspection is still in progress and no conclusions have been made thus far.
China’s trust sector is the most unconstrained funding channel in the financial industry with loans and investments across stocks, bonds, commodities, real estate and more. The sector was once a popular source of property funding with related investment products that were viewed as safe bets by wealthy Chinese individuals and institutions.
The sector holds a combined 20.2 trillion yuan in assets ($3 trillion), as of end-March, according to the China Trustee Association.
The surprise audit with a focus on real estate-linked risk occurs in the midst of an ongoing property crisis that has been headlined by mortgage boycotts over unfinished housing projects by cash-strapped developers. In addition to the trust audit, authorities have responded by offering grace periods for mortgage payments and the establishment of a fund by the People’s Bank of China to support developers to finish building homes.
This year, trust firms have defaulted on about 58 billion yuan of property-linked investment products, according to data tracker Use Trust, which are popularly sold to wealthy Chinese.