Default risks will not cause financial turbulence

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BEIJING -- As the default crisis that affected several Chinese trust companies triggered worries over possible "financial turbulence," experts say a crisis is unlikely, and credit risks can be avoided by improving the regulatory system.

In a latest case, Jilin Province Trust, which raised 1 billion yuan ($162.5 million) to invest in a private coal miner in north China's Shanxi province, told its clients that it had no repayment timetable as the debtor itself is mired in debt.

The trust company missed payments for five tranches. The sixth is due to mature on March 11.

Chinese markets were on edge in January when a similar product created by China Credit Trust Co. warned investors that it might not pay on time when it matured on Jan 31. That product was based on a 3 billion yuan loan to another indebted coal producer in Shanxi.

In the end, investors in China Credit Trust's "Credit Equals Gold" product recovered their principal when an unnamed investor stepped in to purchase collateral assets. But the interest is yet to be paid.

According to the Bank of America Merrill Lynch, China has about $660 billion of trust loans due for repayment or refinancing this year. If the financial system incurs any credit risks, the Chinese economy will face a blurry outlook.

Shadow banking has grown rapidly in recent years as many small and medium-sized enterprises have had difficulties in financing.

China's trust assets reached 10.91 trillion yuan by the end of 2013, increasing 46 percent year on year. The industry made a profit of 56.86 billion yuan, up 28.82 percent from the previous year, said Zhou Xiaoming, a China Trustee Association director.