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New Trust Product Cheers Investors

China's recovering trust industry gained further ground in the largely unexplored foreign exchange business yesterday, with the launch of a US-dollar denominated product in East China's Jiangsu Province.


The Jiangsu International Trust and Investment Co Ltd (JITIC) said its one-year "Power Project Foreign Exchange Trust Plan" became available yesterday to citizens in the relatively wealthy province.


The issue, which carries a predicted return ratio of 2 percent, aims to raise US$3 million in loans for Yangcheng International Power Co Ltd, the trust firm said.


JITIC's move followed its bigger counterpart China International Trust and Investment Co, which successfully marketed the country's first forex trust product in a US$4 million issuance in Beijing early this month.


Analysts say such products are badly needed by Chinese individuals who are frustrated by a lack of investment tools for their rapidly growing forex savings.


Forex savings deposits at financial institutions in China (including foreign-invested ones) rose by 5.8 percent on a year-on-year basis to US$90.5 billion at the end of May, official statistics indicated. The figure in Jiangsu alone stood at US$5.1 billion at the end of last year.


But the hard-currency denominated B-share market remains sluggish, and interest rates are at their lowest level in recent years. The two-year interest rate on US dollar deposits, for example, now stands at 0.6975, as compared with the expected 2 percent yield on JITIC's product.


Such products also found Chinese enterprises a new means of raising forex funds they need, analysts say, and was largely in line with the government's desire to boost demand for hard currencies in a bid to alleviate the mounting upward pressure on the renminbi exchange rate.


The government is reportedly looking for ways, including allowing State-owned enterprises to buy bonds in foreign markets, to absorb the rapid rises in excess dollars that have been pressuring the local currency to appreciate and helped drive up China's money supply growth to undesirably high levels.


But the government is still prudent in approving new forex trust products. Chinese trust companies are just recuperating from a few years of government-orchestrated consolidation after rampant irregularities led to financial chaos and pummelled investor confidence.


The State Administration of Foreign Exchange reportedly shelved a plan earlier this year by a trust company in Chongqing to launch a deposits-targetted forex trust product.


But most trust companies are still hesitant at entering the forex business, which is seen as costlier and riskier due to legal ambiguities, at a time when the market for renminbi business is sufficiently big.


(China Daily August 1, 2003)

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