A clean and regular trust industry is expected by the end of this year with more companies liquidated or restructured and new rules to govern the sector.
Central bank officials said they have drafted a management method on international trust and investment companies (ITIC) and have submitted it for approval.
"We have drafted one, but have not issued it in the form of document," said one source who declined to be identified.
There are also signs that the government has stepped up rectification of the industry.
A number of ITICs were shut down in the second half of this year including the China Education and Technology Trust and Investment Co Ltd, the Hanan ITIC, Dalian ITIC and seven ITICs in the Guangxi Zhuang Autonomous Region.
The five ITICs of China's four State-owned commercial banks - the Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China and China Construction Bank - and the People's Insurance Company were also closed with their securities businesses merged into China Galaxy Securities Co.
Insiders said initial plans for settling the debts of China Everbright ITIC have also been laid down.
The rectification work is expected to be finished by the end of this year, they said.
After the market purification, the original over 20 central-level ITICs would be reduced to only three, namely CITIC (China ITIC), China Coal Trust and Investment Co and China Economic Development Trust and Development Co.
The over 200 provincial-level ITICs would be cut down to around 40 with each province, municipality or autonomous region retaining only one. All debt-ridden ITICs are to be closed and their debts paid by local governments with money lent from the State, said insiders.
CITIC, the country's first, was launched in 1979 to fill the gap left by commercial banks, whose business was restrained to a limited range under the planned economy.
By the end of 1988, over 1,000 ITICs were operating in China. Their scope had transcended trust business to include financing on both domestic and international markets, exports and imports, real estate development, leasing, and loans to enterprises and governments.
Many trust companies did not actually conduct trust business at all.
Due to the multiplicity of their businesses and lack of proper supervision, some ITICs have poor management and have incurred great payment risks. Some firms have been operating irregularly and suffered tremendous losses.
After some firms were closed by the State, the huge amount of debts increased the government's burden while hurting sentiment of investors from both home and abroad.
Rectification of the industry continued for years. By the end of 1997, ITICs had been chopped down to around 200 from the original 1,000, and according to the latest central bank plan, only around 40 would be left in the end.
Some companies are to be liquidated, some will become branches of commercial banks and some will turn into securities firms, insiders said.
The latest reform started in February 1999 and the central bank announced that the main targets of the purification include separating the trust and investment sector from commercial banking and securities, helping good-quality ITICs engage in real trust and money affair management business, eliminating poorly-operated institutions and strengthening regulations to stave off financial risks.
According to international practice, trust companies only act in supplement to commercial banks, insurance companies and securities brokerages by helping clients manage money matters. They cannot engage in banking or securities businesses.
However, the true development of the domestic trust industry still depends on the debut of the new trust law, experts said.
(China Daily 12/04/2000)
