From “Average Income of 3 Million” to “800 Million in Half a Year’s Loss”: What Exactly Happened to the Trust Industry’s “Rollercoaster”?
Hello everyone, I’m your financial journalist. Today, we’re going to talk about an industry that once made countless working people envious and its peers jealous, but now leaves people with a sense of regret—the trust industry.
If you follow financial news, you might remember how trust companies were once hailed as heroes in the financial world, with astonishingly high average profits. However, recently, the news that some trust companies lost over 800 million in just half a year came as a huge shock. What exactly is behind this? Why has an industry that used to be so profitable become a target for criticism?
Don’t worry; we won’t overwhelm you with jargon. We’ll break down this situation in simple terms so you can understand it clearly.
I. Core Summary: A Cycle of “Fast Money” and “Slow Money”
In short, this article explores the entire process of the trust industry’s transition from “wild growth” to “risk clearance.”
1. The Past (Golden Age): Trust companies, with their so-called “universal license,” took advantage of the real estate boom to help developers finance their projects, reaping huge profits. In 2011, the average profit for trust companies was a astonishing 3.11 million yuan—higher than even Tencent’s profits, making them the “elite of the elite.”
2. The Turnpoint (Regulatory Period): In 2018, new regulations on asset management were implemented, and with the decline in the real estate market, the trust industry’s reliance on “non-standard financing” and “channel business” came under strict scrutiny. The practice of guaranteeing principal and returns (known as “guaranteed returns”) was abolished.
3. The Present (Painful Period): Many trust companies have started incurring losses, and some have even lost all the profits they made over the past 12 years in just 4 years. Meanwhile, public funds, which were once the most strictly regulated and seemingly the most “responsible” investment products, have quietly grown to a scale of nearly 40 trillion yuan, achieving a comeback.
4. Conclusion: There are no eternal profits; only cycles of growth and decline. What seems like easy “fast money” often hides significant risks, while what appears limited may actually be more sustainable in the long run.
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II. In-Depth Analysis: Understanding the Rise and Fall of the Trust Industry from Five Perspectives
1. The “Bad Child” of the Past: Why Could Trust Companies Benefit from the Real Estate Boom?
In the financial world, trust companies and public funds are essentially “brothers.” The earliest forms of funds were trust structures. However, their fates have been very different over the past two decades:
- Trust Companies as the “Flexible Ones”: They had a “universal license” that allowed them to engage in almost any type of business, especially lending money to real estate developers. During the real estate boom (2008–2013), when developers lacked funding and banks were hesitant to lend, trust companies stepped in. Their flexibility, relatively low entry barriers, and high returns led to a rapid expansion of their business, making them the second-largest sector in finance, surpassing even insurance.
- Public Funds as the “Well-behaved Ones: Public funds were strictly regulated, with restrictions on leveraging and the creation of high-return products. During the real estate boom, public funds were left out of the action, unable to benefit as much as trust companies.
In simple terms: It’s like running a restaurant. Trust companies were like private kitchens, able to serve any dish they wanted as long as customers (investors) were willing to pay for it, including high-risk assets, thus earning high service fees. Public funds, on the other hand, were like chain fast-food restaurants with fixed menus and high hygiene standards, earning steady profits but with less explosive growth.
2. The Myth of 3.11 Million Yuan in Average Profit: How Big the Bubble, How Hard the Fall
The article mentions a staggering figure: in 2011, the average profit for trust companies was 3.11 million yuan. For comparison, Tencent’s average profit that year was only 520,000 yuan. This means trust company employees were making six times more than the internet giant! By 2020, the average profit for Minmetals Trust had risen to 6.02 million yuan, while Tencent’s was around 1.86 million yuan.
Explanation: Trust companies earned their profits from taking on high-risk real estate projects and charging high management and performance fees. As long as real estate prices continued to rise, bad debts were rare, and profits remained high.
In simple terms: It’s like being a dealer in a casino. When the casino was booming, dealers could earn substantial tips. But these tips came from the ongoing profits of the gambling (real estate) operations. Once the market crashed or debts became unpayable, the dealers lost their earnings.
3. The Moment of Truth: Why Did the “Universal License” Become a Barrier to Transformation?
The turning point came in 2018 with the new asset management regulations:
- How It Used to Work: Trust companies engaged in “channel business” and “non-standard financing.” Banks would lend money to real estate developers through trust companies, which charged a fee without taking on the risk. Investors saw this as safe, so they invested heavily.
- How the Regulations Changed: The new rules abolished guaranteed returns, restricted investments in opaque and high-risk projects, and required financial institutions to bear the risks themselves.
In simple terms: Trust companies were once intermediaries, profiting from the difference between bank loans and developer payments with almost no risk. The new regulations forced them to directly assess and manage the risks, revealing that many of their investments were actually risky.
4. The Extreme Case: Losing 12 Years’ Profits in 4 Years
The article cites the example of Huaao Trust, which lost all its profits from the previous 12 years in just 4 years. Other companies like Hangzhou Industrial and Commercial Trust also saw their average profits plummet from millions to losses.
Reasons:
- Declining Real Estate Market: Developers couldn’t repay their loans, leading to bad debts.
- Historical Burdens: Trust companies had taken on many high-risk projects to expand their business, which now collapsed.
- The Loss of License Value: The trust license was once highly valued, but its scarcity no longer protected them from risks. A single-minded focus on real estate made them particularly vulnerable during the industry downturn.
5. The Comeback of the “Well-behaved Ones”: The Long-Term Strategy of Public Funds
The most dramatic contrast is with public funds:
- From 3 Trillion to 40 Trillion: In 2013, public funds had a much smaller scale, but by the second quarter of this year, they had grown to nearly 40 trillion yuan, overtaking trust companies.
- Reasons for the Comeback:
- Standardization and Transparency: Public funds offer products similar to stocks and bonds, with clear information that investors can understand.
- Net Value Management: They don’t guarantee returns but aim to outperform inflation through diversified investments and professional management.
- Strict Regulation: Strict regulation builds investor trust.
In simple terms: Trust companies focused on high risks and high returns, while public funds focused on stability and long-term growth. During market stability, trust companies did better, but in times of turmoil, public funds proved more resilient and attracted more long-term capital.
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III. Lessons for Ordinary People
This article highlights an important lesson: The price of every gift from fate is already determined in the shadows.
1. Don’t Just Watch the Winners: When an industry is highly praised and its profits seem unrealistic, it often indicates accumulating risks.
2. Cycles Are Inevitable: No industry can grow indefinitely. What was a trust company’s advantage during a boom can become a liability during a downturn. Any business model that relies too much on external factors (like rising housing prices) and lacks core competitiveness will face the cycle’s backlash.
3. Transparency Is a Sign of Long-Term Success: Public funds’ success comes from adhering to strict regulations and maintaining transparency. Although they may seem less flexible in the short term, their compliance and transparency make them more sustainable and trustworthy in the long run.
4. Investor Perspective: Be cautious of products that promise high returns, low risks, and flexibility. Safe investments are often those that are strictly regulated and have stable returns.
In summary: The rise and fall of the trust industry reflects China’s economic shift from rapid growth to high-quality development. The era of relying on boldness and unregulated practices is over. In the future, success will come from professionalism, compliance, and a long-term approach. For ordinary people, understanding this logic is more important than chasing fleeting trends.