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Thursday, April 24, 2014

Senior banking regulator who helped restructure China's trust sector dies

A mainland banking regulatory official who led the opening and restructuring of the country’s trust sector died of a heart attack on Wednesday morning, mainland media reported.

The China Banking Regulatory Commission confirmed with financial magazineCaixin that Li Jianhua, director of the regulator’s Non-bank Financial Institutions Supervision Department, was found dead by his wife at home at around 6am on Wednesday morning.

49–year-old Li suffered a heart attack, several mainland financial news outlets reported.

Li was supposed to attend a conference on the performance of the country’s trust sector in its first season on Wednesday morning, and was up until midnight writing his speech, Caixin quoted a source close to the bank regulator as saying.

The news came on the heels of the new directive on the trust sector. On April 10, the regulatory commission issued stricter guidelines governing trust companies to counter systemic risks they could pose to the country’s finance industry.

Li, then deputy director of the non-bank supervision department, led the drafting of China’s 2007 legislations on trust companies, which pushed forward reforms of the country’s trust sectors.

Trust companies are non-bank lenders that raise funds by selling high-yield investments, also known as wealth management products, and fund loans to property developers and local governments, among other risky borrowers.

A source familiar with the matter told mainland business newspaper 21st Century Business Herald in 2012 that Li was one of the key reformers. He led a group in drafting the regulations, named Measure of Administration of Trust Companies and Measure of Administration of Collective Fund Trust Schemes of Trust Companies, in two weeks behind closed doors in Tianjin.

A report published by KPMG China, China’s Trust Sector: A New Chapter, in 2008 described the legislations as “a turning point” of the “fundamental restructuring of the industry” whose thrust was to help trust companies carve out “a niche serving high-net-worth investors” as well as increase transparency.

Li was assigned to chair the banking regulator in Shaanxi province in December 2007. Five years later, he returned to the state commission’s non-bank department as its director.

In the past five years, the mainland’s trust sectors, also the biggest players in the shadow banking sector, have seen a sixfold increase from 1.22 trillion yuan (HK$1.53 trillion) in 2008 to 6.98 trillion yuan (HK$8.75 trillion) in 2012.

Upon Li’s return to the non-bank department, his major priority was to tighten up the department’s control of trust companies.

“The industry grows rapidly, and so does the risk it has brought to the financial industry,” Li said during the 2012 China Trust Industry Summit.

In the face of China’s slow economic growth, Li and the non-bank department was under great pressure to strive for balance between restructuring the country’s trust sector and preventing it from collapsing in the short term, said Yuan Gangming, a research fellow at Tsinghua University’s Centre for China in the World Economy.

“The speed at which China’s trust sector is developing is not normal, even for a healthy economy,” Yuan said.

Once economic growth slows down, there would be a greater chance that risky borrowers fail to return funds on time.

However a tighter control on the trust sector would impose greater pressure on borrowers who have been struggling for cash.

“But if the bank regulator does not tighten up its control now, soon it will be too late for them to step in, with the trust sector growing at such a high speed,” he added.

Credit to South China Morning Post

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