These investors have joined homebuyers and bond fund managers in feeling the pain of a liquidity crisis that’s driven dozens of developer defaults and frozen construction of hundreds of projects across the country.

China’s trust industry, after at least six rounds of restructuring since its inception in 1979, combines characteristics of commercial and investment banking, private equity and wealth management. Firms in the sector pool household savings to offer loans and invest in real estate, stocks, bonds, commodities, and even bottles of sorghum liquor. No other firms in the financial industry operate across all these asset classes.

Trusts were once a popular avenue of funding for the property sector. Until recently, trust products were seen by wealthy Chinese individuals and institutions as a safe place to park their money.

Eoin Treacy's view

The trust sector in China is dominated by wealthy families which benefitted enormously from the growth of the economy over the last forty years. In many cases that was achieved through relationships with government officials that ensured preferential access to markets or property ventures. The fact many trust clients are members of the establishment themselves can be taken for granted. Therefore it is particularly noteworthy that it is not the subject of investigation.

The reality is the trust sector is a key part of the shadow banking apparatus. Trust supplied property developers with ample funds to acquire land on the assumption the cosey relationship with government would persist indefinitely. Now they are taking heavy losses as property developers default and rising numbers go bust.

The CSI300 Real Estate Index which is populated by companies with strong government connections continues to test the lower side of a yearlong range. A clear upward dynamic will be required to check potential for a sustained downward break.