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Trust law revs up market
( 2001-10-01 09:20 ) (1 )

A new law on trusts will boost the development of China's economy while protecting the interests of investors.

The claim was made by Cheng Siwei, vice-chairman of the Standing Committee of the Ninth National People's Congress (NPC), China's top legislative body.

He made his remarks ahead of the Law of the People's Republic of China on Trust coming into force today, which is expected to give a shot in the arm to the development of trust business.

A trust is essentially a financial arrangement in which an individual (or trustor) gives fiduciary control of property to a person or institution (or trustee) for the benefit of beneficiaries.

"The law marks the legal establishment of the trust trade and provides a powerful legal guarantee and code of practice for it," said Cheng.

The law was initiated eight years ago and only approved by Cheng's committee in April of this year after hot debate.

The law governs basic trust relations to protect the rights of all parties, including trustees, trustors and beneficiaries.

He regarded the trust law as "an important footstone" for legislation regulating the market economy.

The law is not only a fundamental legal principle to regulate trust relations but also a basic prerequisite for trust-related business such as specific types of investment funds, Cheng said.

Chinese lawmakers are now busy working on the draft investment fund management law.

Implementation of the law will also help renew the concept of property management among the Chinese and better protect the interests of investors, especially small ones, Cheng said.

The trust business is burgeoning in China as more individuals and institutions ask trust companies to help them manage their properties.

However, he urged wider publicity on this law in a bid to raise awareness among more people and draw more clients to the fledging business.

The inclusion of regulations for trust firms has remained a focal point of arguments during the law's deliberations. The final version of the law barely touches on the trust industry - a situation now being rectified by the State Council, Cheng said.

Many of the trust companies are actually involved in banking business - strictly banned by the State Council, according to Zhu Shaoping, a senior legislative official with the NPC Financial and Economic Committee.

The People's Bank of China, the country's central bank, promulgated a rule governing the administration of trust companies early this year.

The implementation of this rule could help the law regulating the trust industry, Zhu said, while new rules on related businesses would be worked out when the conditions are right.