The Chinese Dominoes Are About To Fall: Complete List Of Upcoming Trust Defaults

Tyler Durden's picture

As has been widely reported on these pages in the past month, after a near-reality experience almost claimed the first material Chinese shadow banking default, the Chinese government and central bank did what they do best: a mysterious "white knight" emerged out of nowhere, and bailed out the Credit Equals Gold #1 Trust. A few days later, we reported that China Development Bank lent 2 billion yuan to coal company Shanxi Liansheng, which owes almost 30b yuan to lenders including banks, trusts and asset management firms. And while we know how "difficult" it was for China to do the wrong thing and encourage moral hazard, despite repeated assurances by one after another PBOC director that this time the central bank means business, we have good news: these two narrowly averted Trust defaults are just the beginning - it is all downhill from here.

As Bank of America reports in an analysis by David Cui, the Trust defaults are about to get hot and heavy. To wit:

We believe that during April to July the market may see many trust products threatening to default, especially those related to coal mines. By our estimate, the first real default most likely could happen in May with a Sichuan lead/zinc trust product worth Rmb140mn. This is because the product is relatively small (so the government may use it as a test case), the underlying asset is not attractive (so little chance of 3rd parties taking it over) and we also have heard very little on parties involved trying to work things out. Whether this will trigger an avalanche of future trust defaults remains to be seen and this presents a key risk to the market in our opinion.


... it’s still possible that many of the upcoming cases in Apr-July may get worked out one way or the other. Nevertheless, as we believe that many of the underlying assets of the trust products are insolvent, it’s a matter of time that many products will ultimately default, in our view. Various bail-outs will only delay the inevitable.

From BofA's David Cui

12 potential defaults reported by the media

Table 1 summarizes the information on the 12 major potential defaults in the trust industry that have been reported by the media. Most of them are coal mine related and heavily concentrated in one area, Shanxi Province. So far it seems to us that most of them may get extended upon the due date. The only exception over the next few months appears to be a product issued by China Credit Trust for a lead and zinc miner in Sichuan, Nonggeshan. Even without any major default over the next few months, the process of debt restructuring can be messy and weigh heavily on market sentiment.

19 Feb 2014, Rmb109mn borrowed by Liansheng & arranged by Jilin Trust

  • Details: This Rmb109mn tranche is part of a six-tranche trust product worth a total of Rmb973mn arranged by Jilin Trust for Liansheng, a Shanxi coal miner. The other five tranches have matured since 2H 2013 and remain overdue.
  • Potential outcome: Repayment may be extended.
  • Reason: Liansheng is undergoing a debt restructuring coordinated by the Shanxi provincial government. 1) The provincial government plans to help out involved financial institutions to ensure the region’s access to ongoing financing. According to people close to the situation, the implicit guarantee practice will most likely continue with the Liansheng’s case. 2) Trust companies may have to follow banks to help the miner out. Banks have agreed to extend their mid/long term loans by three years. Top 3 banks have total debts of Rmb10.6bn to Liansheng; top 3 trust lenders, Rmb3.7bn.

(Shanghai Securities News, 2/11; Economic Information, 2/13)

21 Feb 2014, Rmb500mn borrowed by Liansheng & arranged by Shanxi Trust

  • Potential outcome: repayment may be extended.
  • Reason: Same as the Jilin Trust case.

(Caiing 1/27; China Securities Journal, 1/27; 21st Century Business Herald, 2/14)

07 Mar 2014, Rmb664mn borrowed by Liansheng & arranged by Changan Trust

  • Details: Other than the Rmb664mn product to mature on Mar 7, Changan Trust arranged another two products for Liansheng, totaling Rmb536mn which matured in Nov 2013. Both products remain overdue.
  • Potential outcome: repayment may be extended.
  • Reason: Same as the other Liansheng cases.

(Caiing 1/27; China Securities Journal, 1/27; 21st Century Business Herald, 2/14)

31 Mar 2014, Rmb196mn borrowed by Magic Property & arranged by CITIC Trust

  • Details: invested in an office building in Chongqing. The Chongqing developer ran into financial problems in mid-2013. CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.
  • Potential outcome: The developer and the trust company may share the repayment.
  • Reasons: 1) When CITIC Trust sold the product, it did not specify the underlying investment project. 2) The local government has intervened, fearing social unrest. A local buyer of a unit in the office building committed suicide as he/she could not obtain the title to the property due to the title dispute between the trust and the developer.

(Source: Financial Planning Weekly, 3/6/2013; Guangzhou Daily, 4/6/2013, Boxun, 5/10/2013)

14 May 2014, Rmb1.5bn borrowed by Liansheng & arranged by China Jiangxi International Trust

  • Potential outcome: repayment may be extended.
  • Reason: Same as the other three Liansheng cases.

(Caiing 1/27; China Securities Journal, 1/27; 21st Century Business Herald, 2/14)

30 May 2014, Rmb140mn borrowed by Nonggeshan & arranged by China Credit Trust

  • Details: invested in a lead and zinc mine in Sichuan.
  • Potential outcome: Likely to default.
  • Reasons: 1) Compared to coal mines of Zhenfu and Liansheng, the lead and zinc mine is a much less attractive asset: it is located in the mountains over 5,000 meters in altitude, inaccessible for 6 months of the year due to weather conditions, with low lead/zinc content; 2) According to an unnamed regulator, the central government is comfortable with trust defaults in the range of Rmb100-200mn.

(Source: 21st Century Business Herald, 31/7/2012; Caiing, 1/27)

25 Jul 2014, Rmb1.3bn borrowed by Xinbeifang & arranged by China Credit Trust

  • Details: Xinbeifang is another Shanxi coal miner.
  • Potential outcome: repayment may be extended.
  • Reason: Xinbeifang is negotiating with an SOE to sell some of its coal mine assets.

(Source: China Securities Journal, 1/15)

27 Jul 2014, Rmb319mn borrowed by Hongsheng & arranged by Huarong Trust

  • Details: Hongsheng is a Shanxi coal miner. Huarong sold another trust product for it which will mature in 4 September 2014, worth Rmb63mn.
  • Potential outcome: repayment may be extended.
  • Reason: Hongsheng may have assets to secure more financing. It issued these two trust products to replace another trust product that matured in Q3 2012. The owner also issued other trust products using his personal property assets as collateral and raised Rmb1.2bn.

(21st Century Business Herald, 20/12/2013)

7 Sept 2014: Rmb400mn borrowed by Zengdai & arranged by CCB Trust

  • Details: 1) The proceeds of the product were invested in financial markets. 2) Its 1st tranche, worth Rmb400mn, matured in Mar 2013 with a 38% loss vs. an expected return of 20-30%. Investors agreed to extend the maturity of the product to Sept 2014. 3) Its 2nd tranche, worth Rmb359mn, matured in June 2013 with a 31% loss vs. an expected return of 20-30%. Investors agreed to extend the maturity of the 2nd tranche to Dec 2014.
  • Potential outcome: The trust company and the investment company may share the losses.
  • Reasons: 1) The investment company refused to repay investors in full at the original due date so the trust company may have to chip in; 2) By Jan 2014, the 1st tranche reported a narrower loss of 24%, and the 2nd tranche, also a narrower loss of 13%; 3) Zengdai may pay on behalf of its investment company for reputation’s sake.

(Source: Securities Daily, 9/7/2013; CCB Trust)

20 Nov 2014, Rmb600mn borrowed by Liansheng & arranged by China Jiangxi Int'l Trust

  • Potential outcome: repayment may be extended.
  • Reason: Same as the other Liansheng cases.

(Caiing 1/27; China Securities Journal, 1/27; 21st Century Business Herald, 2/14)

23 Dec2014: Rmb1.1bn borrowed by Xiaoyi Dewei & arranged by China Resources Trust

  • Details: Xiaoyi Dewei is a Shanxi coal miner. The trust product originally matured in Dec 2013 but repayment was extended to Dec 2014.
  • Potential outcome: Likely to default.
  • Reason: Both the miner and the trust company refused to repay investors in full at the original due date. There has been no reporting on asset sales by Xiaoyi Dewei.

(Source: Financial Planning Weekly, 11 Nov 2013)

15 Jan 2015, Rmb1.2bn borrowed by Hongsheng’s owner & arranged by Minmetals Trust

  • Details: the collateral is the Shanxi coal miner’s personal property assets.
  • Potential outcome: May be replaced by a new trust product.
  • Reason: Same as the July 2014 Rmb319mn trust product issued by Huarong Trust.

(21st Century Business Herald, 20/12/2013)

2Q/3Q 2014 – the next peak maturing period for collective trusts

We consider the trust market the most vulnerable part of the major financing channels for companies, i.e. loan, corporate bond and trust. The quality of the borrowers in the trust market tends to among the lowest. Within the trust market, collective trust products, i.e. those sold to more than one investor, tend to be risker than single trust products, i.e. those sold to a single investor. This is because investors in single trust products tend to be more substantial in resources, thus most likely more sophisticated in their risk control.

The Wind database lists close to 12,000 collective trust products, worth Rmb1.34tr, which cover roughly half of the collective trust market (Rmb2.72tr as of the end of 2013). It has reasonably good quality data series on the issuing dates and amounts raised. However, data on maturing dates are sporadic. We estimate that the average duration of the trust products is around 2 years. Based on this assumption and the issuing dates, we have mapped out a rough maturing profile of the collective trust market. As we can see from Chart 1, 2Q and 3Q this year will be the next peak maturing period for this market.

Coal mine trusts maturity schedule

We went through the offering documents of the top 200 collective trust products by size (the smallest being Rmb400mn), worth some Rmb145bn in total. They represent roughly 10% of the trust products in the Wind database and 5% of the overall collective trust market. We identified the industries of the issuers, the regions where their businesses are located and the maturity dates of the products. Table 2 summarizes the results.

We believe that coal mine trusts are the most likely to default over the coming months because 1) coal price has dropped sharply in recent quarters; 2) most of the issuers are private enterprises; and 3) they tend to be from provinces whose governments rely heavily on resources related income, e.g., Shanxi and Inner Mongolia. On the other hand, the property market has been reasonably buoyant in recent times while LGFVs generally have access to re-financing until the implicit guarantee is removed (a whole different topic worthy another report later). Based on the maturing schedule of the top 200 collective trust products, we expect more noise about coal mine trust defaults around Apr, June and July (Chart 2).

Table 3 lists the coal mine trust products that are in our study.

For the trust market, we only have data on approximately half of the collective trust market, which in turn, accounts for about a quarter of the overall trust market. So essentially, we only covered about 1/8 of the total trust market with our analysis. Single trusts are less risky than collective trusts. Nevertheless, if the solvency issue is a systemic problem as we expect, many single trusts will ultimately default by our assessment.

Our analysis has largely zoomed in on coal mine trusts because they represent the clear and present danger given how depressed the coal market has been. However, property related trusts may come under increasing pressure as we sense that the property market may be turning south in small cities. As a result, some of those related products may threaten to default reasonably soon. Then we have the big unknown – LGFV trusts. Whether and when they may default is largely a political decision in our opinion.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
VD's picture

if the only went in on tungsten mines rather than lead/zinc....

idea_hamster's picture

I think that the Fed should just buy these.  The WMP-version of CARP -- we could call it WARP.

Expand the Fed balance sheet a bit and create a new flow of hot money into China that can be re-funnelled back through the CCB to buy USTs.

Because, why not, right?  

TruthInSunshine's picture

Reckoning draws closer by the day, and it's quite a bit LESS than the oft-repeated "6 months away, give or take." Japan & China are in full blown "make up completely fabricated statistics" mode, and even by that unicorn metric, things aren't looking so great for them. The truth is much more raw. As for the EU & U.S., they're sucking wind. Check out the layoffs, closings and shrinkage otherwise in the restaurant, retail and now, even manufacturing businesses in the U.S., which are not widely reported on by the Main Stream Financial Press (which has a conflict of interest in reporting on such matters) but can be tracked at sites like I'll go a step further; I think that revisions to economic data will show that the U.S. re-entered economic contraction back in Q3 of 2013, and that we're going to experience a more steep economic decline over the next 2 years than we did in 2008 to 2010, which will break many of the resilient survivors who were clinging on, and will murder those who went into further debt in the intervening time period*.


*Confidence Fairy Soweth & Reapeth

[W]ithout exception, throughout history, the masses do not understand there is a crisis until well after it has already begun, and they've already committed to many purchases, indebtedness and other forms of dis-saving, that they wouldn't have committed to had they known accurate information sooner.

Hence, the "confidence fairy," which governmental employees, politicians and business spokespeople all actively perpetuate in their own methods and by various tactices, is a serial and mass killer of efficient markets and rational economic behavior (as it severely distorts essential economic information that is relied upon by economic and market participants).

GetZeeGold's picture



Time to sell the US Treasuries.....I hear Belgium is looking to buy.

TheFourthStooge-ing's picture

They have to park all that waffle money somewhere.

BandGap's picture

So the word "trust", as in "Trust" Fund, really is a misnomer.

It's a mad wolrd, this.

idea_hamster's picture

These WMPs are "trusts" in the same way that "hedge funds" are funds that hedge:  not at all, and basically the exact opposite.

Caviar Emptor's picture

Thought it had to do with saving hedgehogs..

TheFourthStooge-ing's picture

Shrubbery funds, such as Ni, Peng, and Neewom, are popular in certain beknighted areas, or so I've heard.

El Oregonian's picture

It only gets BITTER from here.

Wahooo's picture

The weak are failing. That's bullish!

Four chan's picture

it's the new amerikan way, so why not export that to china like our jobs and middle class?

TheFourthStooge-ing's picture

Alas, alas, three times alas, new 'amerikan' way under US citizen of A system infused nuancements vigourously. Describings as "The weak are failing. That's bullish!" gives picture apparently, but somehow on a thriving detail lacks veracity.

For biggest weaks in US citizen of A system, failurous outcome is unpermitted. They are running a business of extorting the less weak, farming the not-yet-poor.

BudFox2012's picture

Funny, Jim Cramer was just singing the praises of Chinese Trusts on his show today, so this can't be true...

Caviar Emptor's picture

Yes. Didn't he also predict the crash if '87?

El Oregonian's picture

No, he said he bought hash in '87

GetZeeGold's picture



No.....he had the stock pick of '08.

NoDebt's picture

Once again, I don't want to give away the ending here, but just SIT AND WATCH.  You will be amazed.

(Ok, Ok, I'll give away the ending this time:  PBOC will bail out EVER DAMNED LAST ONE OF THEM.  THey're in the same box as the Fed was in 2008.  They WILL bail them out.)

Seasmoke's picture

Of course they will.....and yet I still fool myself thinking this is why I hold physical Gold 

Pure Evil's picture

They don't have to bail them all out, just a few.

Nationalize the majority, thereby eliminating them from the pile, while working on the most prominent before they collapse.

NoDebt's picture

You're right, they don't have to bail them ALL out.  Just the ones that matter.  If they think they can let one slip here and there without starting the dominoes falling, they'll let it fail.  But what they are going to find, I think, is that MANY of them have the possibility of starting the cascace, even if they are relatively small.

Remember the earlier posts on ZH about the relative size of Chinese QE and their leverage ratios, which dwarf those of the US and Japan combined.  Less wiggle room to absorb a "shadow banking" default than anyone else on the block.

walküre's picture

The PBoC is NEITHER the Fed nor the BoJ. Period. The corruption in China is so deep, it's absolutely insane to believe that the Chinese central bank has any more control over financial politics and the outcome of years and years of manipulation and corruption than the Chinese politbureau.

They can and will implement censorship and they can try and mask the fallout from these defaults, but defaults will happen. Mark my words.

The difference in the US is that all the political and financial machinations are by and large run by the same group of people from the same tribe. They have each others backs. The Japanese have code and discipline and a very gulible loyal population.

Not so in China. The PBoC and the political leadership are in way over their heads here.

new game's picture

it may be as simple as who is blowing who or who is married to who or who bent over for who...

does who = wu? wufukwi?

mjcOH1's picture

"Of course they will.....and yet I still fool myself thinking this is why I hold physical Gold "


I owned it because an ounce could be traded for $20 in FRNs, a bad horse, or a good suit in 1914.
And because an ounce can be traded for $1200 in FRNs, a bad horse, or a good suit in 2014.


But then there was the boating accident.

So I will miss out on $12,000 in FRNs, a bad horse, or a good suit in 2020.

Tinky's picture

So it's all good, right?

NoDebt's picture

Good is a relative term.  When you have choices between bad and worse, you choose bad.  We chose a path that was OBVIOUSLY frought with moral hazard (and are now paying the price of that choice by gutting the goose that lays the golden egg- sacrificing the middle class).  So will they.  They're good at copying, those Chinese.

Jack Napier's picture

There is always a 3rd, 4th, 5th, 6th... inifiinite amount of choices. Bad and worse can both take a hike. Preparedness will enable such a luxury. Skills help too. People with skills don't need money.

FieldingMellish's picture

As long as they shoot the trustees, I'm OK with that. China deals with these things a little differently.

NoDebt's picture

The problem in China is that you've got "party officials" or their relatives in on a lot of these things.  So, yeah, you'll see some people get prosecuted/imprisoned/shot, but it won't be those who are really pulling the strings.  The US is a neophyte when it comes to cronyism compared to China.

ejmoosa's picture

Well, they won't have to print dollars at least.  They can just sell some more of the treasuries they hold.  After all, better to sell them now before they become worthless as well.

TheRideNeverEnds's picture

Whats to stop them from just printing more money?  The only reason this would happen is if they have a reason to let it happen, what motive would they have? 

NoDebt's picture

Exactly.  There's nothing stopping them.  

TruthInSunshine's picture

The ONLY way China can minimize the full, brutal force of what awaits it is to print CNY like Bernanke on meth.

China's exports are flagging BADLY, as the rest of the increasingly poorer world passes on many of Chinese manufactured discretionary widgets.

So, history says currency debasement followed by a massive fire sale is in the works for a nation that desperately needs to support its massive labor pool and export-intensive economic model.

walküre's picture

Sure they will have a printfest to cover the problems. China is a lot closer to becoming Weimar than the US. Their own people don't trust the Mao paper and don't like holding it or have converted to alternatives. China may be a low cost producer but China cannot combat hyperinflation!

hootowl's picture

With 200 million more young men than women, China will have little option but to send the men abroad to fight and die in an off-shore war.  If the Chinese economy tanks, even a little, tens of millions of starving, unemployed, disenfranchised young chinese men will be a force for chaos that even the much-vaunted Chinese politbureau will not be able to contain.

China is not the cohesive national entity that so many people think it is.

BandGap's picture

Hey, what could go wrong?

OldPhart's picture

Ho Lee Fuk, Sum Ting Wong?

disabledvet's picture

Melissa Lee better be showing up in too tight Stilletto heels, too tight leather and with a whip for tomorrow's edition of the Fast Money Five "House of Pain" trade.

This is exactly what the USA went through...only without the insurance, without the regulation and no "BAZOOKA."

You wanna play with the big boyz? You need a BAZOOKA mister!

Randoom Thought's picture

... and it is all meaningless.

deflator's picture

 I can remember way back when President Clinton granted WTO status to China and lifted all barriers for U.S. corporations to move manufacturing to China.

 The ultimate conclusion of any argument against was, "We" can destroy China financially anytime "we" feel like it. They were idiots then and they are idiots now. Wealthy and bosses of companies and governments but still idiots in the greater scheme of things.

 Was it Napoleon who said, "Do not awaken the sleeping giant for when the sleeping giant awakens, let the nations tremble."?

 The concensus among useful idiots is that making  China an integral part of extrapolating the U.S. economic model globally is a free lunch because when the U.S. is finished using China they can simply drop her like a used rubber and she will go away. Sad but true that this is and has been U.S. foreign policy for many years.

john39's picture

Bill Clinton, just doing his part to destroy the American middle class.

deflator's picture

"President Bill" President is a lifetime title. Reporters only began using, "former" in front of the title President during President Nixons lifetime.

 When President Obamas two terms are up and there is another current sitting President do you think the mainstream media will use former in reference? I doubt it

MeMongo's picture

Kinda fitting, seeing how he was the real "first black president":-)