Analyst Who Raised Alarm For Chinese Banks Now Predicts Potential Instability In China's $2.9 Trillion Trust Industry

The analyst recognized for his spot-on predictions regarding China’s regional banks is now raising the alarm about potential issues within the country’s $2.9 trillion trust industry.

What Happened: Jason Bedford, notable for his accurate forecasts about Chinese banks, has voiced apprehensions about the health of the country’s trust industry, reported Bloomberg.

Bedford, formerly associated with UBS Group AG and Bridgewater Associates, has indicated that several trust firms could be “deeply distressed,” potentially threatening their capital solvency.

Bedford earned his reputation by accurately predicting issues in China’s smaller banks after examining nearly 250 financial statements. He has now performed a similar analysis on the country’s trust firms, often viewed as a part of the shadow banking sector, known for offering returns significantly higher than regular bank deposits.

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Based on Bedford’s analysis, 14 of the 55 trust companies that published financial statements for 2022 reported non-performing and special mention assets that surpassed a third of their total assets. Bedford also hinted that a number of the 13 firms that did not report could be at risk.

China’s trust industry, which contributes to nearly 10% of the country’s total loans according to Bloomberg Economics, has already shown signs of instability. Earlier this year, defaulted payments from Zhongrong International Trust Co. sparked protests, and New China Trust Co. filed for bankruptcy in May, marking the industry’s first.

Why It Matters: The trust industry’s instability could potentially have a significant impact on China’s economy, considering it accounts for nearly 10% of the country’s total loans. The recent signs of instability, such as the bankruptcy of New China Trust Co. and the protests sparked by Zhongrong International Trust Co.’s defaulted payments, underscore the potential risks within this sector. Bedford’s warning serves as a crucial heads-up for investors and stakeholders, urging caution and closer scrutiny of the trust industry’s financial health.

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