How China securities firms got 1 trillion yuan

Caixin Online

BEIJING (Caixin Online) ? The amount of assets managed by Chinese
brokerage firms soared last year, exceeding 1.2 trillion yuan
($193 billion) by the end of December, up from 280 billion yuan
at the beginning of the year, data from the industry group
Securities Association of China shows.

However, most of those assets ? 80% to 90% of the total
according to some analysts? estimates ? was tied to banks and
had nothing to do with the brokers? investment ability.

In a typical bank-to-securities company asset management agreement,
the bank entrusts the securities firm with funds raised from wealth
management products, and the securities firm uses the money to buy
the bank?s notes or invest in other types of financial instruments.
The arrangement allows the bank to shift assets off its balance
sheet and circumvent lending restrictions. The securities firm, in
return, charges the bank a fee for using its service.

But there is a growing concern among people in the securities
industry that the boom may not last. One of the reasons, an analyst
from a securities firm said, is that the business is almost an exact
replica of what the banking regulator has sought to curb.
The way securities firms help banks maneuver wealth money resembles
a cooperative scheme between banks and trust companies, an arrangement
that allows banks to channel money through trust products to borrowers
that otherwise couldn?t receive bank loans.

The tactic is still used today but much less frequently, the analyst
said, because the China Banking Regulatory Commission released a policy
in August 2010 that required all trust companies to cap the value of
trusts tied to bank loans at 30% of their total outstanding products.
Also, banks were required to include loans made through trusts on their
balance sheet.

Source: http://www.thechinamoneyreport.com/2013/02/16/how-china-securities-firms-got-1-trillion-yuan/

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