An Overview of PRC Trust Law and Trust Business
Jianbo Lou ＊China became the fifth Asian jurisdiction to adopt Trust Law in2001, just after India (1882), Japan (1922), South Korea (1961), and Chinese Taiwan (1996). It is a good time to review the law, regulations andrules supporting the law, as well as the development of trust businessin China, after more than ten years. The paper begins by providing thebackground information on the Trust Law, i.e., why it was enacted in
2001? Secondly, I shall brief main contents of Chinese trust law, withreference to relevant administrative regulations and rules whenevernecessary. The third part of the paper focuses on the trust business in
China, with examples of trust products in China. In part four, various
theoretical debates on trust law in China will be presented and summarized. The paper ends with some proposals on the future of PRC trust
law and trust business.
No revisions or judicial interpretations to or on trust law have evenbeen made since the adoption of the 2001 Trust Law. That doesn’tmean, however, that the 2001 Trust Law all stands by itself. There are＊ Associate Professor of Law, Co-director, Center for Real Estate Law, Coordinator, Commercial
Law Section, Peking University Law School
Lou Jianbo had earned both a Bachelor and Master in Law from Peking University Law School and a
PhD in Law from University of London (2001). He taught 5 years at University of Cambridge and is now
teaching at Peking University Law School. He teaches commercial law, property law, as well as financial law. Dr. Lou published extensively in both Chinese and English, and has been consulting with various government agencies on issues about real estate law and financial law. His undergoing research
projects include: (1) contract and property law issues in financial derivative transactions; (2) real property transaction law (as part of the effort to rewrite China’s Urban Real Estate Administration Law);(3) title registration law (as part of the effort to unify title registration in China; (3) commercial trust.
Dr. Lou was a member of the 11th Chinese People’s Political Consultative Conference Beijing Committee and is now a delegate of the 14th People’s Congress in Beijing.

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several other laws, administrative regulations, as well as administrative
rules adopted by the CBRC (China Banking Regulatory Committee) orother competent authorities to supplement the Trust Law, including
but not limited to Securities Investment Fund Law of the People’s Republicof China (adopted in 2003, as amended in 2012, and 2015 respectively);
Regulations on Financial Asset Management Companies (State Council OrderNo. 297 [2000]); Measures for the Administration of Trust Companies (issued
by CBRC No.2[2007], to replace the 2002 PBOC Administrative Provisions
on Financial Trust and Investment Institutions), Measures for the Administration of Trust Companies’ Trust Plans of Assembled Funds (CSRC Order No.3
[2007]), and Measures for the Administration of Net Capital of Trust Companies(CBRC Order No.5 [2010]); Temporary Administrative Measures on the Investment Matters of National Social Security Fund《全国社会保障基金投资管理暂行办法》(Ministry of Finance, Ministry of Labor and Social Security
Order No. 12 [2001]), Interim Measures for the Administration of Commercial
Banks’ Personal Financial Management Services (CBRC Order No. 2 [2005]),
Administrative Measures for the Securitization of Credit Assets (CBRC No. 7[2005]), Administrative Measures on Securitization Business of Securities Companies and Fund Management Companies《证券公司及基金管理公司子公司资产证券化业务管理规定》(CSRC Announcement No. 49[2014]). The
cores among them are the Trust Law, Measures for the Administration ofTrust Companies, Measures for the Administration of Trust Companies’ Trust
Plans of Assembled Funds, and Measures for the Administration of Net Capitalof Trust Companies (as colloquially called the “one law + three measures”).

1. Why Trust Law was Enacted in 2001
The trust business in China could be traced back to more than
100 years ago. The business diminished after 1949 in Mainland China
until the first PRC trust company, CITIC1, was established in October1979. In 1986, the PBOC issued Temporary Administrative Provisions on
Financial Trust and Investment Institutions (《金融信托投资机构管理暂行规
1 CITIC：中国中信集团公司，前称“中国国际信托投资公司”，简称“中信公司”。

― 130 ―定》). The business had its hey days until mid-1999s. By the end of 1995,
there were 392 trust and investment companies nationwide. The assetsof those companies totaled more than RMB 600 billion, accounting for
approximately 10% of total financial assets of the country. In late 1990s,
PRC trust business came across its first crisis. GITIC went bankruptcy
in 1998. Meanwhile, Hainan ITIC (HITIC) defaulted on USD 370 million
worth of Samurai bonds owed to Sumitomo Bank and other Japanesecreditors, causing considerable tension among foreign investors. In 2000,
the then regulator of the trust industry, the PBOC2 ordered all trust
companies to reapply for permission of business and to suspend theiroperation before they were granted new business license.
The Trust Law of China could only be understood against thisbackground. The NPC Financial and Economic Commission started thedrafting work in 1993, as part of the effort to clarify and secure thelegality of the industry, so as to guarantee the sustainable developmentof the industry. In 1996, the draft law was submitted to the Standing
Committee of the National People’s Congress for first deliberation. The
trust law, however, was not adopted until 2000 after three deliberations,when the PBOC accomplished the consolidation of the industry.

2. Main Contents of Chinese Trust Law 2001
2.1 Creation of a Trust
Trusts in China can be created either by contract or by will orother written documents. Establishing a trust by declaration of a settlor (or trustor) to become the trustee (self-trust) is not recognized by
Chinese Trust Law.
2.1.1 Creation by Contract
A trust can be created by a contract between the settlor and thetrustee, and this is the most common way of creating a trust in China.
2 In 2003, CBRC became of the new regulator of trust company.

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According to the Trust Law, the contract has to be in writing and shallcontain the following contents (art. 9): (1) purpose of the trust; (2) nameand address of the settlor, trustee and beneficiary; (3) scope, type andstatus of the trust property; and (4) ways and methods by which thebeneficiary receive the trust benefits.
The trust is created at the time when the contract is concluded
between the settlor and trustee.
A trust property is necessary for creating a trust. The PRC trust
law requires the certainty and legality of the trust property (art. 7). but
it does not have to be transferred to the trustee at the time of the creation of the trust. Some properties such as real properties and special
movable properties (e.g. motor vehicles and ships) are required to beregistered according to laws, and trust would not come into effect until
such registration is accomplished.
The contract is legally binding on both parties. As for the settlor, if
the property is not transferred to the trustee at the time of the contract,he/she has a duty to transfer the trust property as agreed between theparties. The trustee owes a range of duties such as duty of loyalty even before he/she takes possession of the trust property. In short, trust creation
is not a disposal of a property, it is an arrangements between the parties.
2.1.2 Creation of Trust by Will
A trust created by will or other legal documents become effective
upon the acknowledgment of the trust by the trustee (art. 8). In a trust
created by will, if the person appointed by the testament refuses or does
not have the capacity to act as trustee, the beneficiary may appoint
other trustees. In the event that the beneficiary is a person without civil
capacity or a person with limited capacity, his guardian shall appoint thetrustee on his/her behalf according to law. Moreover, a testamentary
trust shall also comply with the provisions of the PRC Succession Law.3
3 For more detailed discussion on potential conflicts between the two laws, see. e.g., Frances H.
Foster, “The Dark Side of Trusts: Challenges to Chinese Inheritance Law”, 2 WAUGSLR 151.

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2.1.3 Creation of Trust by Other Written Documents
Article 8 of PRC Trust Law allows the creation of trust by otherwritten documents as provided by laws and regulations. In practice,
however, other written documents are rarely used to create a trust.
2.2 Fundamental Structure of a Trust
2.2.1 Independence of Trust Property
A trust property does not have a status of legal entity, but it isindependent and separated from the properties owned by the trustee
and settlor. The management and operation of the trust property should
comply with the terms of the trust agreement. The proceeds obtainedby the trustee through administering, using or disposing of the trust
property or by other means falls within trust assets (Art. 14 (2)), andthe expenses incurred in managing trust property shall be borne by thetrust property.
2.2.1.1 Trust Property Legally Separated from the Properties
Owned by the Trustee
Trust property is treated as a property separated from the properties owned by the trustee. Thus the creditors of the trustee cannot claim against the trust property, nor shall such trust property betouched upon trustee’s bankruptcy.
The segregation between the trust property and the trustee’s property are publicized either by registration (for properties which shall be
registered, art 10) or by separate management or separate accounting
between the trust property and trustee’s inherent property (art. 29).
2.2.1.2 Trust Property Legally Separated from the Properties
Owned by the Settlor
A trust property is separated from settlor’s other properties. In
cases where the settlor is the only beneficiary, however, once the settler
dies, or is dissolved by liquidation, or is declared bankrupt, the trust willterminate and the trust property will be a part of bankruptcy estate.
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The segregation between the trust property and settlor’s otherproperties is publicized by registration for properties that shall be registered or title-transfer of the trust property from the settler to thetrustee, or a custody of the trust property with a third party.
2.2.2 Beneficial Rights and its Nature
A beneficiary under PRC trust law is a person who enjoys thebeneficial rights of the trust. The beneficial rights are transferrable andinheritable, unless provided otherwise in the trust documents.
PRC trust law doesn’t give a clear definition to the nature of thebeneficial rights. Under the law, the beneficiary does not only have theright to accept the beneficial interest, but also has some other rights
equivalent to that of the settlor’s, including but not limited to, (1) right to be
informed of the administration, use and disposition of, and the income andexpenses relating to, the trust property; (2) the right to supervise thetrustee on the management of the trust property (art. 20); (3) the right to
ask the trustee to adjust the methods of management of the trust property if the methods prevents the achieving of the purposes of the trust or
are not in compliance with the interests of the beneficiary due to special
causes that are not foreseen when the trust was established (art. 21); (4) theright to apply to the people’s court for withdrawing the improper disposition carried out by the trustee and the right to ask the trustee to revert the trust property or make compensation (art. 22); (5) the right toremove the trustee according to the provisions of the trust documents orapply to the people’s court to remove the trustee, if the trustee disposes
the trust property against the purposes of the trust or is at serious fault
when managing, utilizing or disposing of the trust property (art. 23).
2.3 Administration of Trust
2.3.1 Trustee’s Power
Under PRC trust law, the trustee has three general powers as follows: (1) managing the trust property and dealing with trust affairs; (2)entrusting a third party to handle the trust affairs; and (3) making an― 134 ―

objection to the people’s court about enforcement of the trust property.
The exact power of the trustee, however, shall be defined in accordancewith the provisions of the trust documents and trust laws.
2.3.1.1 Trustee’s Power to Handle the Trust Affairs and Manage
the Trust Property
When trustee handles the trust affairs, he/she shall fulfill the purpose of the trust on the beneficiary’s behalf. There are also specificrules governing trusts where trustees are trust companies, for example,
trust companies are prohibited from selling the trust properties for
repurchase. The law-maker believes that selling trust properties for
repurchase is mainly a way of financing rather than managing trust
properties.
2.3.1.2 Trustee’s Power to Raise an Objection to the People’s
Court Regarding Compulsory Measures Taken Against
the Trust Property
Article 17 of the Trust Law sets out circumstances where compulsory measures may be taken against the trust property, including: (1)where the creditors enjoyed the priority right to be paid out of the trust
property before the creation of the trust exercise this right according
to law; (2) where the creditors demand repayment of the debts incurredby the trustee in the course of handling trust business; (3) where tax
authorities claim taxes liabilities on the trust property; and (4) othercircumstances prescribed by law.
In the event that compulsory enforcement measures are taken
against the trust property in violation of provisions in the preceding
paragraph, the settler, trustee and beneficiary shall have the power toobject to the order of the People’s Court.
2.3.1.3 Delegation of Trustee’s Power to a Third Party
A trustee shall handle the trust affairs himself. The trustee, however, may entrust a third party to handle such affairs on his behalf if the― 135 ―

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trust documents provide so or such trustee has to do so under circumstances beyond his control (art. 30).
The Trust Law provides that where the trustee, in accordancewith law, entrusts another person to handle trust business on his behalf,
he shall bear the responsibility for the acts committed by person inhandling such affairs. In other words, the third party assumes no direct
responsibility to the beneficiary. The rule applies to both natural person
and trust company trustees.
2.3.2 Trustee’s Duties
Trustee shall comply with the provisions of the trust documents
and handle the trust affairs for the best interests of the beneficiary, andhe/she owes duty of loyalty and duty of care.
2.3.2.1 Duty of Loyalty and Conflict of Interest
The duty of loyalty is mainly concerned with (1) preventing conflictof interests and (2) preventing trustee from obtaining interest for himself/herself.
According to art. 26 of Trust Law, the trustee shall not use thetrust property for the purpose of seeking his personal interest. Also,art. 27 prohibits the trustee from mixing the trust property with his/her own property. Art. 28 prohibits the trustee from conducting intertransaction between his own property and trust assets (self-dealing) or
between the trust assets of different settlors, unless: (1) it is otherwise
stipulated in the trust documents; or (2) it is permitted by the settlors
or beneficiary and such inter transaction is conducted at fair market
value. If the trustee violates arts.27 or 28, he/she shall bear the liability
to compensate damage caused by such violation.
If the trustee is a trust company, the provisions under Measures for
the Administration of Trust Companies shall apply. Art 25 of the Measures states that trust companies shall make their best efforts to avoid
conflict of interests. In cases where it is impossible to avoid conflict of― 136 ―

interests, the trust company shall either disclose such information to thesettlor and the beneficiary or refuse to carry out such business. If thetrust company engages in affiliated transactions, it has to report eachtransaction to CSRC in advance and disclose the relevant informationin accordance with the relevant provisions and conducts the transaction at fair market value. Also, art. 34 of the Measures prohibits trust
companies, among others, from (a) seeking unjust interests by taking advantage of his/her role as a trustee; (b) misappropriating trust property
for any non-trust purpose; (c) promising that the trust property would
suffer no loss or guaranteeing a minimum return; and (d) providing guarantee secured by trust property.
2.3.2.2 Duty of Care
The trustee owes a duty of care in accordance with art.25 of theTrust Law. If the trustee’s violation of duty of care (e.g. handling trust
affairs improperly) causes damages to the trust property, the trustee
may not request for payment of remuneration before restoring the trust
property to its original status or having made compensations (art. 36).
The duty of care is different from the duty of loyalty as the former
focuses on damage to the trust property incurred by the trustee’s negligent conducts, whereas the latter is mainly concerned with conflict ofinterests.
2.3.3 Trust Administration Expenses
The expenses incurred in managing trust shall be borne by thetrust property, and if the trustee has paid in advance with his/her own
property, the trustee has the priority right to seek payments from thetrust property (art. 37). It is generally believed that the trustee’s rightof compensation takes precedence over the interests of the beneficiaryand the general creditors of the trust property.
The Trust Law, however, is silent on the issue of whether thetrustee’s right takes priority over the mortgage and other real rightsof security. Some scholars claim that in order to protect the safety of― 137 ―

信託法研究第40号（2015）transactions, the trustee’s right of compensation must not be superior tosecured creditors’ rights. Besides, some commentators even argue that
if the trustee is the legal owner of the trust property, it is illogical to
give him priority over his own property.
2.4 Beneficiary
2.4.1 Acquisition of Beneficial Interest
If the settlor and the beneficiary are different persons, the issue ofwhen and how the person designated as beneficiary in the trust instrument will acquire the status of beneficiary will arise. In the case of acontract for the benefit of third party, the third party acquires the rightat the time when he/she consents to accept the right created. Different from the general rules on contract creating rights for a third party,
the beneficiary enjoys the beneficial right of the trust from the datewhen the trust comes into effect, unless otherwise provided in the trust
documents (art. 44). As stated in art. 46 of the Trust Law, the beneficial
rights of the trust may be abandoned by the beneficiary. In the eventthat beneficiary is unable to repay debts, the beneficial interests can beused to pay off such debts, unless restricted by the laws, administrative regulations or the trust documents (art. 47). By virtue of art.48, thebeneficial rights of the trust can be transferred and inherited according
to the Trust Law, unless otherwise restricted in the trust documents.
2.4.2 Beneficiary Right to Supervise the Trust
The beneficiary has the right to supervise the trust, i.e., how thetrustee handles the trust affairs or manages the trust property. The
rights enjoyed by beneficiary include the right to (1) require disclosure(art. 20); (2) revoke the deal between the trustee and a third person under certain conditions (art. 22); (3) request for the trust property to berestored to its original status or for compensation of damages (art. 22);(4) dismiss the trustee (art. 23); (5) raise objections to the compulsory
enforcement measures taken against the trust property (art. 17); and(6) request the trustee to adjust the management methods of the trust― 138 ―

property (art. 21), etc.
It is worth noting that in this respect, the settlor enjoys the samerights as that of the beneficiary, and if the beneficiary and the settlor
hold different opinions about how the rights shall be exercised, the beneficiary may bring an action in court. In practice, however, this rule isvery inefficient as litigation is costly and time consuming. The majority
view among scholars is that those rights shall be exercised according
to beneficiary’s opinions, unless otherwise provided by the law or thetrust documents. Some commentator even goes further to criticize that
Trust Law overemphasizes the protection of the settlor and fails to address the coordination between the settlor and beneficiary, resulting ininsufficient protection of the beneficiary.
2.5 Modification of a Trust
The Chinese Trust Law allows modification or change of the administration of the trust, trustees, and the rights of beneficiaries. The
default rules on modification of a trust, however, can easily be superseded by provision in trust documents.
2.5.1 Modification of Administration
As to modification of administration, art. 21 provides that if, as
the result of special causes that are not foreseeable when the trust
was established, the original method for administering the trust is notconducive to achieve the purpose of the trust, or is in conflict with thebeneficiary’s interest, the settlor or the beneficiary has the right toinstruct the trustee to adjust the methods of management of the trust
property (art. 49). Again, the problem of possible disagreement between
the settler and the beneficiary would appear.
In the context of charitable trusts, the power to make such instruction is exercised by the competent authorities. Article 69 states, in asimilar vein, that if circumstances unforeseeable at the time of the creation of the trust have occurred, the competent authority may amend
the terms of the trust in order to accord with the purpose of the trust.
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2.5.2 Modification of Trustees
2.5.2.1 Removal of Trustees
A trustee may be compulsorily removed only under limited circumstances. Article 23 provides that if the trustee disposes the trust
property against the purpose of the trust or is grossly negligent in his
or her administration, use, and disposal of the trust property, the settlor
has the power to remove the trustee according to the provisions of thetrust documents or to apply to the people’s court to remove the trustee.
Art. 49 grants the beneficiaries the same power.
Art. 68 states that a trustee of a charitable trust, who violates thetrust obligations or does not have the capacity to perform his or her
duties, shall be replaced by the competent authority.
2.5.2.2 Termination of Trusteeship
Trusteeship would terminate on any one of the grounds set forth inart. 39 of the Trust Law, namely: (1) the trustee dies or is declared dead;(2) the trustee is declared as a person without civil capacity or a personwith limited civil capacity according to law; (3) The trustee appointment
is cancelled according to law or the trustee is declared bankrupt; (4)the trustee is dissolved or the trustee loses legal qualification; (5) The
trustee resigns or is dismissed; and (6) other circumstances provided bylaws and regulations.
Upon the occurrence of one or more of above-mentioned circumstances, the original trustee’s successor, executor, administrator, guardianor liquidator is required to take due care of the trust property and assist
the new trustee to take over the trusteeship. If there are other trustees,
they shall manage the trust affairs or trust property (para. 2, art. 39).
2.5.2.3 Appointment of New Trustees
Upon the termination of trusteeship, art. 40 provides that a newtrustee shall be appointed according to the provisions of the trust documents; in absence of such provisions, the settlor shall appoint a new― 140 ―

trustee; if the settlor fails to appoint or doesn’t have the capacity to
appoint a new trustee, the beneficiary shall make the appointment; orif the beneficiary is a person without civil capacity or a person withlimited civil capacity, his guardian shall appoint the new trustee on hisbehalf according to law.
In accordance with paragraph 2 of the same article, “the new trustee shall inherit the rights and obligations of managing the trust affairsof the former trustee.”
It is worth noting that paragraph 1 of art. 40 only apply to appointing a new trustee to replace an outgoing one. It does not authorize theappointment of additional trustee(s), nor does any other provision of theTrust Law confer such power.
2.5.3 Modification of the Rights of Beneficiaries
According to art. 51 of the Trust Law, the settlor may change oreven dispose of the beneficiary’s right in one of the following circumstances: (1) the beneficiary seriously infringes upon the rights of thesettlor; (2) The beneficiary seriously infringes upon the rights of any of
the other joint beneficiaries; (3) with the approval of the beneficiary; and(4) other circumstances prescribed in the trust documents.
Moreover, the settlor may revoke the trust under circumstances
1, 3, or 4.
2.6 Termination of a Trust
One important aspect, which renders the trust superior to otherlegal devices such as contract or agency, is that it continues in force
notwithstanding the death, dissolution, shutdown, or bankruptcy of theparties establishing a trust. Under PRC Trust Law, the grounds whereby a trust may be terminated are the decisions made by the parties tothe trust, the impossibility or unfeasibility of its continuation, and its
nullification by the People’s Court. Once any such ground exists, provisions that facilitate the process of termination and the vesting of the― 141 ―

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trust property to appropriate individuals will apply. A charitable trust,
however, may be terminated on other grounds.
2.6.1 Grounds for Termination
Grounds for termination of trust can be found in various articles of
PRC Trust Law. Accordingly, (1) if the settlor dies or is dissolved according to law, or is cancelled or declared bankrupt according to law,and if the settlor is the only beneficiary, the trust shall terminate andthe trust property shall be deemed as his heritage or liquidation property (art. 15); (2) the trust shall terminate if all beneficiaries renounce
their beneficial rights of the trust (para. 2, art. 46); (3) where the settlor
is the only beneficiary, the settlor or his/her successor may rescind thetrust, unless otherwise provided in the trust instrument (art. 50).
Last but not least, art. 53 provides that the trust shall terminate under any of the following circumstances: (1) any of the causes for termination as prescribed in the trust documents happens; (2) the existence andcontinuance of the trust goes against the purposes of the trusts; (3) the
purposes of the trust have already been realized or cannot be realized;(4) the parties of the trust agree to terminate the trust after negotiation;(5) the trust is withdrawn; or (6) the trust is rescinded.
2.6.2 The Effects and Process of Termination
Upon the termination of the trust, the trust property shall be vest
to the person stipulated in the trust instrument; if there are no relevant
provisions in the trust documents, the attribution of the trust property
shall be determined in the following order: (1) the beneficiary or his/her
successor; (2) the settlor or his/her successor.
After the property goes to the final recipients upon the terminationof trust, any enforcement against the trust property in accordance withart. 17 of the Trust Law shall be enforced against the recipients (art.
56). It is worth noting, however, that in the interim period when therelevant properties are being transferred to these recipients, the trust
is deemed to continue to exist, and the beneficiaries are deemed to be― 142 ―

the owner of the trust property (art. 55).
Upon the termination, the trustee is required to prepare a liquidation report on his or her administration of the trust, which needs tobe approved by the beneficiaries or the recipients stated in the firstparagraph of this section (art. 58). Upon approval, the trustee is released
from liabilities arising from matters dealt with in the liquidation report,though he or she continues to remain liable for the wrongful acts he or
she had committed during the administration of trust affairs or trust
property.
If there is unclaimed remuneration or compensation on trust property upon the termination of trust, the trustee may retain the trust
property or make claims to the person who has the right to own thetrust property (art. 57).
2.7 Public (Charitable) Trusts
2.7.1 Public Purposes
To be qualified as a public trust, a trust must be established forone of the specified charitable objectives set forth in the Trust Law.
According to art. 60, those objectives include: (1) helping poor people; (2)helping disaster victims; (3) assisting the disabled; (4) developing education, technology, culture, art and physical education undertakings; (5)developing medical and sanitation undertakings; (6) developing environment protection undertakings and maintaining the environment; and (7)developing other public undertakings of the society.
2.7.2 Special Approval by the Competent Authority
Alike other trusts, public trusts can be created by a written contract, a written will or other written documents in China. According toart. 62, however, the creation of public trusts and appointment of trustees for such trusts shall be approved by regulatory authority of relevantpublic undertakings (hereinafter referred to as “competent authority”),
and all the trust property of public trust and its proceeds must not be― 143 ―

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used for non-public purposes (art. 63).
2.7.3 Trust Supervisor
Each public trust must have a “trust supervisor”, who should bespecified in the trust instrument. If there are no relevant provisions in
the trust documents, the competent authority shall appoint the trust supervisor (art. 64). The roles of the trust supervisor are twofold: first, heor she is to approve the trustee’s annual reports (art. 67) and, if the trust
terminates, the liquidation report (art. 71); secondly, the trust supervisor has the power to bring an action in a court or carry out other legal
acts in his own name in order to protect the interests of the beneficiary(art. 65).
2.7.4 The Competent Authority’s Power to Modify the Trust
2.7.4.1 Power to Change the Trustee
Article 68 of the Trust Law provides that the competent authority
shall change the trustee if the trustee of a public trust violates the trust
obligations or doesn’t have the capacity to perform his or her duties.
Furthermore, the charitable trustee must not resign without approvalof the regulatory agency of public undertakings (art. 66).
2.7.4.2 Power to Change the Terms of Trust
Article 69 of the Trust Law stipulates that where circumstances
unforeseeable at the time of the establishment of the trust arise, thecompetent authority has the power to amend the terms of a charitable
trust in accordance with the trust purpose.
2.7.5 Termination of Public Trust
Article 72 specifies that upon the termination of the public trust, if
there is (1) no person who has the right to own the trust property or (2)it is the unspecified general public that have the right to own the trust
property, the trustee shall, with the approval of the competent authority, utilize the trust property for the original purposes of public interests― 144 ―

or similar purposes, or transfer the trust property to a public organization that has similar purposes or other public trusts.

3. Trust Businesses in China + Case Studies
According to art. 4 of Trust Law, an entity that is to carry out trust
as its business, i.e., to administer trust affairs and manage trust property
as trustee for purpose of running business and collecting remunerations,must acquire a license for the trust business. Currently, in addition to trust
companies, which are under the supervision of CBRC, securities companies and their subsidiaries, commercial banks, fund management companies and their subsidiaries, insurance assets management companies, PE
management companies are also penetrating into the trust business.
3.1 The Development of Trust Industry Between 2001 and 2014
3.1.1 An Overview
Immediately after the adoption of Trust Law in October 2001, the
PBOC publicized Measures on Administration of Trust and Investment Companies and Contemporary Measures on Administration of Pecuniary Trust of Trustand Investment Companies in 2002, in an attempted to reform the sector
by enhancing regulatory oversight and establishing a framework forpunishing companies operating outside of the law. The two measures
dramatically restricted the business scope of TICs.4 Despite their dramatically reduced operating scope, TICs Quickly rebounded and by theend of 2004 the sector had assets totaling RMB 278.4 billion.
In 2003, the CBRC took over supervisory and regulatory oversightof the trust sector. Immediately afterwards, the CBRC started a newround rule-making and industry restructuring and managed to reduce
the number of TICs to a more rational level by January 2005. In 2009,
the CBRC revised the 2007 Measures for the Administration of Trust Companies’ Trust Plans of Assembled Funds by allowing individual investors with
4 In particular, TICs were no longer allowed to borrow from abroad, guarantee minimum returns,
or take deposits of any sort.

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investments equal to, or in excess of, RMB 3 million to be regarded as
institutional investors and thus not counted in the cap of 50.5 This has inturn prompt trust companies to offer their more exclusive, high-return
products to individual investors who invest more than RMB 3 million.
China’s trust business is making great progress these years. From2007 to 2014, assets under trust management raised rapidly from 1
trillion to 14 trillion. Having been enjoying fast growth for almost a decade, the trust sector experienced an obvious structural change in 2014,evidenced by the slowdown of growth, decline in performance, and increasing risk in particular areas such as real estate. The whole picture,
however, is not all negative.
By the end of 2014, the growth of asset scale and business performance (total revenue, total profit and per capita profit) of 68 trust
companies slowed down substantially. The trust industry, however,still achieved steady growth. In contrast to the decline in operating efficiency of trust companies, profits for beneficiaries increased steadily
in 2014.
In terms of risk-control, in spite of scattered default events in trustloans and investments, the whole industry continued to maintain a goodrecord in risk management and managed to immune from regional orsystematic risk,6 thanks to the continuous construction of the three risk
5 Only qualified investors can invest in trust plan of assembled funds (or collective pecuniary trust).
A qualified investor must satisfy one of the following conditions and has the capacity to identify, judge
and undertake the corresponding risks of a trust plan: (1) a natural person, legal person or any otherorganization established according to law whose minimum investment in a trust plan is RMB 1 million
yuan or more; (2) a natural person whose aggregate individual or family financial assets exceed RMB
1 million yuan at the time when he/she subscribes the trust plan and who can provide the relevant
property certificate; (3) a natural person whose annual income exceeds RMB 200,000 yuan or a couple
whose annual income exceeds RMB 300,000 yuan for the last three years. The number of natural
persons investing in a one trust plan may not exceed 50, while the number of natural persons with asingle entrustment of more than RMB 3 million yuan and qualified institutional investors is won’t be
counted in the 50 cap.
6 It is reported that till the end of 2014, there are 369 projects with hidden risks, involving 78.1
billion, accounting for 0.56%, lower than the bad loan level in bank industry, compared to the data at
the end of the second quarter of 2014, the amount (917 million), proportion (0.73%) of the risk projects
have both declined.

― 146 ―

defense line: capacity cushion, market-based risk disposal capacity, andestablishment of industry stability mechanism7.
3.1.2 The Constitution of Trust Assets
Pecuniary trusts still dominate. In the end of 2014, the size of pecuniary trusts was RMB 13.04 trillion, accounting for 93.28% of the total
trust assets nationwide; while the scale of non-pecuniary property trusts
was RMB 0.94 trillion, accounting for 6.72% of the total. Starting from2010, the percentage of non-pecuniary trust assets in the whole trust assets, however, has been presenting a slow but stable rise, 4.86% in 2010,
3.55% in 2011, 6.50% in 2012, 5.49% in 2013, and 6.72% in 2014.
Pecuniary trusts can be further classified into single-settlor pecuniary trusts and collective pecuniary trusts (or trust of assembled funds).
In a single-settlor pecuniary trust, there is only one investor (settler),
while in a collective pecuniary trust, there are two or more investors. Ina typical single pecuniary trust, the client of the trust company set thetone for the trust. In contrast, a collective pecuniary trust is designed by
the trust company, and the fees are significantly higher. In other words,
the CPT is a standard products sold to multiple investors, while the
SPT is a product tailored to individual client’s requirements. According to China Trustee Association, by the end of third quarter of 2014,
Table1:Business Data of Trust Companies (3rd Quarter 2014)
AmountCollective Pecuniary Trust

Composition
AmountSingle Pecuniary Trust

Composition
AmountNon-cash Property Trust

Composition

377142758.80
29.13％
841783840.75
65.01％
75905198.84
5.86％

7 The CBRC worked hard to promote “Eight Mechanisms” in trust industry in the year of 2014,
namely “Corporate Governance Mechanism”, “Product Registration System”, “Classification Management Mechanism”, “Capital Constraint Mechanism”, “Mechanism of Social Responsibility”, “Restoration
and Disposal Mechanism”, “Industry Stability Mechanism” and “Regulatory Evaluation Mechanism”.

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信託法研究第40号（2015）

SPTs accounted for nearly 65.01% of the trust assets under management, while the proportion of CPTs and PMTs were just approximately
29.13% and 5.86% respectively (see Table 1).
3.1.3 The Declining Trust for Financing Purpose
The proportion of financing trust (debt trust) in the year 2014 continued to decline and dropped to below 40% for the first time (33.65%),
compared to the historically highest percentage (59.01% in 2010), and47.76% at the end of 2013. At the same time, the proportion of investment trusts and property management trust is steadily increasing. In
2014 investment trust (equity trust) accounted for 33.70%, 9.83 percent
higher than the historically lowest proportion (23.87% in 2010), 1.16%
above the proportion 32.54% in the end of 2013. Property management
trusts accounted for more than 32.65% in 2014, exceeding 30% for the
Table2:Business Data of Trust Companies (3rd Quarter 2014)
AmountInfrastructure

Composition
AmountReal Estate

Composition
AmountSecurities (Stocks)

Composition
AmountSecurities (Public Offering Funds)

Composition
AmountSecurities (Bonds)

Composition
AmountFinancial Institutions

Composition

Industrial and Commercial Enterprises

AmountComposition
AmountOthersComposition― 148 ―

265774744.88
21.8％
126530983.17
10.38％
43014276.16
3.53％
13003992.85
1.07％
110660867.41
9.08％
191781898.83
15.73％
314723951.2
25.82％
153435885
12.59％

first time, an 19.90% rise compared to the historically lowest percentage
in 2011 (12.75%), and an increase of 12.95% compared to 19.70% at theend of 2013.
3.1.4 Major Investment Fields of Trust
As for year 2014, the five major investment fields of trust are,industrial and commercial enterprises, infrastructure, financial institutions, securities market, and real estate development. Statistics showthat at the end of the fourth quarter of 2014, RMB13.04 trillion trust
money was invested in those five major areas. Table 2 shows a moredetailed statistics in the third quarter of 2014.
3.1.5 The Launch of Trust Service to Wealthy Families
In 2013, there are about three trust companies which had started
to provide the family trust service. The business will certainly grow in
China some day in the future. For the moment, however, family trust
business is small in scale. The business will have to be carried out incompliance with the Marriage Law and Succession Law, in addition totrust law.
3.2 Case Studies
3.2.1. Real Estate Trust
Strictly speaking, real estate trust is not a legal term. In practice,― 149 ―

信託法研究第40号（2015）

any trust that is designed to raise money to finance the development ofreal estate can be called a real estate trust. A real estate trust can be
pecuniary trust or property trust. Real estate trust may finance a realestate development by lending the project company (debt trust) or contributing new capital into the company (equity trust). Most real estate
trusts in China are debt trust.
The diagrams above show the transaction structure of “Shenghong
Mansion” trust, which take the form of property trust. As shown in the
diagram, the deal is carried out in the following steps: (1)Yuan Hong Co.
Ltd. entrusted its real estate development project-Beijing Shenghong
Mansion (with a market value of 0.41 billion RMB) to Beijing International Trust Co. Ltd. to establish a property trust, with Yuan Hong Co.
Ltd. as the settlor and the sole beneficiary. (2) The beneficiary rights in
the Trust were divided into two tranches, superior beneficiary rights
and general beneficiary rights. Yuan Hong kept the general beneficiaryrights and assigned the superior beneficiary rights (approximately 0.25
billion RMB) via Beijing International Trust Co. Ltd (agent) to investors(superior beneficiaries of the trust). (3) Beijing International Trust Co.
Ltd, the trustee, contracted with Yuan Hong Co. Ltd., to have Yuan
Hong manage the trust property, the project of Beijing Shenghong Mansion. All the profits earned from the project were put into a specialbank account opened by Beijing International Trust Co. Ltd. for thetrust plan.
A key feature of the deal is the tranches of beneficiary rights, bygiving the investors the superior tranche, the settlor actually provided
a kind of personal guarantee. What is uncertain in the deal, however, is― 150 ―

what was assigned from the settlor to the trustee, i.e., the trust property. Is it the whole mansion project, or the right to profits from the operation of the project? It certainly makes more sense to have the mansion
project rather than just entitlements to its profits as trust property. The
problem, however, is that registration of trust real property is yet todevelop in China. Article 10 of the Trust Law requires trust registration
before a trust of real property can come into effect. That explains why
many trust of the same line in China will take the form of pecuniary
trust rather than property trust, and why in those deals, extra credit
enhancement mechanisms will have to be provided.
3.2.2 REITs?
3.2.2.1 Overview
While in the U.S., REITs may take the form of a trust, a corporate
or other organizational structure, so far as it meets various tests on
assets, sources of income, distribution of profits, etc., in many otherjurisdictions such as Taiwan, Hong Kong, Australia, and Japan, REITs
takes the form of trust.
China has yet to develop public REITs.8 The real estate trust in
China is different from REITs in at least two perspectives: (1) unlike REITs, real estate trusts in China are mainly debt trust to finance project
on development, while in many jurisdictions, REITs are prohibited or
restricted from investing in developing project. (2) Most of real estate
trust plans are tailored for a single specific project and normally will
be completed in a couple of years, while REITs in most jurisdictions
are on-going operation and invest in various project. Actually, in mostjurisdictions REITs are not allowed to concentrate its investments to asingle project.

8 It is reported that Penghua Qianhai Vanke Securities Investment Fund (“鹏华前海万科REITs封闭式混合型发起式证券投资基金”) succeeded its registration with the CSRC on June 8, 2015. The fund,however, are not public REITs.

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信託法研究第40号（2015）

3.2.2.2 CITIC “QI HANG”
Diagram 3 demonstrates the basic transaction structure of “QiHang” Plan (a 3-5 years plan). As shown in diagram 3, the deal was carried out in the following steps: (1) Project company 1 and project company 2 were established to own Beijing CITIC Securities Mansion (value
at RMB 3.502 billion) and Shenzhen CITIC Securities Mansion (valued
at RMB 1.503 billion) respectively. The two project companies are 100%controlled by CITIC. (2) CITIC established CITIC Golden Stone Fund(“Fund”) with a registered capital of RMB 100 million. The Fund took
over CITIC’s equity in project companies 1 & 2 at a price little bit
higher than RMB 5.04 billion. (3) The Fund paid the price by the money
raised from issuing fund units to investors. The fund units were divided
into different tranches, with superior RMB 3.65 billion tranche for investors who subscribed at least RMB 5 million each, and inferior RMB 1.56
billion for investors who subscribed at least RMB 30 million each. (4) On
May 21, 2014, the fund units were traded in a special trading platform
Diagram 3― 152 ―

for institutional investors under the aegis of Shenzhen Stock Exchange.
As for the distribution of profits from the two project companies,
it is agreed that Fund takes 1.5% from the money received as management fee each year; while 70% of the rest goes to the superior-unit-holders and 30% goes to the inferior-unit-holders. By the end the trust plan,
if there is an appreciation in the trust assets of the plan, the superiorunits-holders are entitled to 10% of the appreciation in cash, while theinferior-units-holders will share 90% of the appreciation in cash or inother forms.
While Qi Hang is yelled as a deal most alike REITs, given that theunits are only traded in a platform only open to qualified investors. It
has still a long way to go and many obstacle to overcome before it canbe converted into public REITs.
3.2.3 C ITIC Trust of Farmers’ Contracted Management Rights
on Rural Agricultural Land in Suzhou City, Anhui Province
As shown in Diagram 4, there are two trusts, one PT between the
Yongqiao district government and CITIC, one pecuniary trust between
various qualified investors and the CITIC; or, in CITIC’s statements, twoDiagram 4― 153 ―

信託法研究第40号（2015）

class of settlors, one entrust management rights on farmers’ contracted
land to CITIC, the other (B class & T class) settlors entrust their money
to CITIC. I shall try to explain the deal structure as two trusts.
The structure of the PT on farmer’s contracted agricultural land
can be summarized as follows: (1) The government of Yongqiao District,Suzhou city in Anhui Province, entrusted the right to manage the land,
which involved 891 acres of land owned by Zhumiao Village and Taqiao
Village of Zhuxianzhuang town of Yongqiao District, to CITIC Trust.
The trust where the government of Yongqiao District is the settlor andthe beneficiary on behalf of the right-holders (individual farmers) while
CITIC serves as trustee will last for 12 years. (2) The Yongqiao district
government obtains authorization to entrust the 891-acre-land to CITIC
by a three-tier contract arrangement, one between farmers in the twovillages and the respective village committee, i.e., Zhumiao village committee and Taqiao village committee, authorizing the committees toassign management rights on farmers’ contracted agricultural land on
behalf of them, the second between the two village committees and thegovernment of Zhuxianzhuang town, authorizing the town government
to assign management rights on farmers’ contracted land, the third between the town government and the government of Yongqiao District,authorizing the district government to assignment management rights
on farmers’ contracted land. (3) Agricultural companies rent land fromthe trustee and pay rents to the trustee.
In the PT, there are two classes of settlors. Class B settlor entrusted their money to CITIC, which lent the money to agriculturalcompanies for land improvement, while class T settlors entrusted theirmoney to CITIC, to secure the liquidity of the trust plan.
CITIC made the above-described two trusts into a scheme, where
there are three classes of beneficial rights, class A, class B, class T. The
income of the trust are to be distributed roughly in the sequences of A,
B and T.
― 154 ―

The major obstacle in the deal is the prohibitive provisions in China
law preventing farmers from assigning their contract rights to manage
the agricultural land to a third party. In this deal, CITIC stated that thetrust property is not the contracted right to manage the land as a whole,
but the right to manage the land only. Right to manage the land, however, is unclear under Chinese law, although at policy level, it is already
decided that farmers are entitled to transfer right to manage the landon their contracted agricultural land.

4. Some Fundamental Theoretical Problems
4.1 Compatibility of Trust in the Civil Law System in Terms of the
Ownership of the Trust Property and the Nature of BeneficiaryRight
4.1.1 D oes Entrustment Necessarily Result in the Transfer ofTitle?
The common law jurisdiction position that the trustee owns legal
title on trust property while the beneficiary has the equitable title isidentified as one of the most severe obstacles preventing civil law countries from adopting trust. The dual titles on one property violate aninherent principle of civil law called “Bestimmtheitsgrundsatz”, i.e., one
title on one property.
PRC Trust Law avoids the obstacle by adopting a vague term in
its art. 2, which reads as follows: “the settlor entrusts certain property
rights it owns to the trustee and the trustee manages or disposes of theproperty rights in its own name in accordance with the intentions of thesettlor and for the benefit of the beneficiary or for specific purposes.” As
the trust property is “entrusted” rather than “transferred” or “disposed”,
it is not necessarily that the legal title goes to the trustee. By the vague
expression, the lawmakers managed not to answer the title issue.
Scholars hold different views on whether the title is transferred by“entrustment”. The first view is that the settlor owns the trust prop― 155 ―信託法研究第40号（2015）

erty and the trustee manages the trust property on behalf of him. The
second view is that trust property is independent property with certain
purpose and without owners. The third opinion is that the beneficiaryowns the trust property; since the beneficiary will get the interests ofthe trust property at last and he/she has some substantive claims sameas the settlor (arts. 20-23).
4.1.2 The Nature of Beneficial Right
The nature of beneficial right is a subsequent question arising outof the debate on who hold the title of trust property. Again, art.44 of
PRC Trust Law uses a vague term “beneficial right”, to avoid defining
the nature of beneficial rights.
As mentioned in previous part, under PRC Trust Law, however,the beneficiary not only has the right to accept trust benefits, but also
has some substantive claims same as the settler. Those provisions leadto the debate on the nature of beneficiary rights. Scholars proposed
three different understandings of the nature of beneficiary rights, i.e.,
the personal rights (creditor’s right) position, the rights in rem (or ownership) position, and the new type of right position. Those who hold thethird view argue that the beneficiary right has both natures of creditor’srights and right in rem, similar to shareholder’s right.
As professor Nomi rightly pointed in his excellent notes on Japanese Trust Law, most of the debates around the issue, are only of
theoretical nature, because the law makers always have the privilege oflisting specific rights for the beneficiary without defining the nature ofbeneficiary right.
4.2 When Does a Trust Come into Effect?
As mentioned before, alike the position of Japanese trust law, trust
is regarded as an arrangement between the parties. According to para.
3, art. 4, “[w]here a trust is established in the form of written contract,such a trust shall be deemed established when the trust contract isconcluded. As for trust created by other written documents, the trust is― 156 ―

deemed established when the trustee promised the trust.”
Art. 10 of the Trust Law, however, creates confusions on the point.
Art. 10 requires the registration of trust for trust of which the trust
property are those which the law or administrative regulations requires
so, including, but not limited to: real property, motor vehicles, aircrafts,
ships, stock rights and IP rights. According to art. 10, if the parties
didn’t apply for such registration, they shall apply later, otherwise thetrust won’t come into effect.
More than a decade after the adoption of Trust Law, the trust
registration mechanism is yet to be established in China. The majority
view is against the position of art. 10. It is argued that the effect of theregistration is to make the trust valid against the public.
4.3 Shall the Trustee’s Liability to Third Parties be Limited to theTrust Property?
It is clear under PRC trust law that trustee’s liability to pay trust
benefits to the beneficiaries is restricted to the trust property (art. 34).
This is certainly an appropriate position. The question is whether thetrustee’s liability to third party arising out of his administration of trust
affairs shall also be limited to the trust property. PRC trust law obviously takes the “yes” position. Paragraph 1 of art. 37 of the law reads asfollows: “The fees paid and debts owing to a third party by the trustee
due to the administration of the trust affairs shall be borne by the trust
property. If the trustee effects such payment in advance with his own
existing property, he shall have the prior right to be compensated by
the trusted property.”
There are arguments against the position of art. 37. Many people
take the view that normally, the property in the name of the trustee
includes trustee’s inherent property and the trust property, and when athird party deals with the trustee, the third party might not be awarethat the trustee is handling the trust affairs for a specific trust plan. It
is therefore unfair to limit the trustee’s liabilities to the trust property.
― 157 ―

信託法研究第40号（2015）

In this regards, the publication requirements in Japan on limited liability
trust might be a proper way to solve the problem.

5. The Future of Trust Law and Trust Business in China
5.1 Another Round Restructuring of Trust Business in China?
As evidenced by various statistics given in section 3, trusts in China are nowadays more a source of financing, supplementing banking
and securities industries, or to be more accurately, standing along withbanking and securities industries.
The growing role of trust companies in sourcing funds to industries
is not without problem. Since 2012, there have been a number of highprofile defaults and near defaults by trust companies. As part of the efforts to solve the problem, on April 8, 2014, the General Office of CBRC
issued Guiding Opinions on Risk-regulating-and -supervising of Trust Companies (中国银行业监督管理委员会办公厅关于信托公司风险监管的指导意见关于信托公司风险监管的指导意见（银监办发[2014]99号, hereinafter
the No. 99 Guidance）. The No. 99 Guidance, naming risks faced by trust
business as shadow-banking business risk, calls among other things, forthe trust industry to strengthen their capacity to provide bespoke family trust services to China’s wealthy families, for the establishment ofregistration and information system of trust products, and to classify
trust companies into different classes according to their qualificationand track record, and to license companies in different classes for different trust businesses.
The No. 99 Guidance might denote another round of the restructureof trust companies nationwide. The focus of the restructuring, according to the reporter’s reading of the document, will be internal rather
than external. In other words, trust companies in China are encouraged
to enhance its internal control and risk-management capacity, and toadjust their business in accordance with their capacity and inherent
capital.
― 158 ―

5.2 China Trust Security Fund
The No. 99 Guidance called for the establishment of China Security Fund, as a mechanism to protect the clients and to safeguard thesustainable development of the whole industry. On December 10, 2014,
CBRC and Ministry of Finance jointly issued Administrative Measures ofChina Trust Security Fund 《( 信托业保障基金管理办法》(银监发[2014]50号)).
According to the Measures, China trust security fund shall be a mutual
fund; a limited liability company-China Trust Security Fund Limited
Liability Company shall be established to manage the fund. The major
sources of fund are contribution from trust companies. The fund shallbe used to pay for: (1) the reorganization of trust companies in administrative liquidation procedures; (2) reorganization of trust companies inbankruptcy procedures; (3) the liabilities and debts of trust companies
which are ordered to close or dissolve due to their illegal operation; (4)liquidity support of trust companies; and (5) other necessary items.
On December 19, 2014, China Trust Security Fund Limited Liability
Company was established in Beijing.
The fund will certainly have some impact on the industry.
5.3 Proposals of China Trustee Association on the Amendments ofTrust Law
China Trustee Association is pushing hard to make necessary
amendments to the Trust Law. In 2014, the Association published draft
amendments, proposing : (1) to redefine trust businesses (or commercial
trust operations) by applying trust law to trust businesses carried out byother financial institutions (securities companies and their subsidiaries,
commercial banks, fund management companies and their subsidiaries,
insurance assets management companies, PE management companies
and etc.); (2) to clarify the meaning of “assign to” in article 2 of the Trust
Law; (3) to allow declared trust (or self-trust); (4) to clarify the issue ofwhen does a trust come into effect, in particular, whether transfer ofproperty is required for a trust to come to effect; (5) to establish a prop― 159 ―信託法研究第40号（2015）

er trust registration system; (6) to clarify the liabilities of trustee to theperson who entrusted with trust affairs; (7) to specify the standards oftrustee’s duties, in particular the standards for duty of care; (8) to clarify
the meaning of “the regulatory agency of relevant public undertakings”(有关公益事业的管理机构) under art. 62 of Trust Law.
Those proposals are not necessary all in the right tracks. And so
far as the reporter is aware about, Trust Law may not be amended in
the near future. The problems identified by the association behind those
proposals, however, shall be paid special attention to.
5.4 Anxin Trust Co. Ltd. Vs. Kunshan Chungao Investment andDevelopment Co. Ltd (安信信托昆山纯高资产收益权信托案)
The Case (hereinafter referred to as Kunshan Chungao case) is
recognized as a landmark case in 2013.
As shown in Diagrams 5 & 6, there are two transactions between
the disputed parties. Those deals are carried out in the following sequences: (1) In September 2009, Kunshan Chungao Investment and Development Co. Ltd. (hereinafter referred to as Kunshan Chungao) andDiagram 5: In the Eyes of Kunshan Chungao― 160 ―

Diagram 6: In the Eyes of Anxin Trust

Anxin Trust Co. Ltd. (hereinafter referred to as Anxin Trust) signed“Right to the Income from Assets of Kunshan· Federal International
Project Trust Contract” (昆山・联邦国际资产收益财产权信托合同, hereinafter referred to as Property Trust Contract). Under the contract,
Kunshan Chungao, the settlor, entrusted its right to the income from
Assets of Kunshan· Federal International Project (hereafter referred
to as “right to the income”) to Anxin Trust to set up a PT. The rightto the income was valued at RMB 627 million. The beneficiary’s rights
were classified into two tranches. Kunshan Chungao held the generalbeneficiary rights itself, while the superior beneficiary rights were soldto public investors at a price higher than RMB 215 million. To secure
the beneficiary rights of public investors, Kunshan Chungao agreed to
mortgage the assets of the projects, namely, the land use rights andbuildings (including those under construction) to the trustee. (2) To facilitate the registration of mortgage, the two parties entered into a Trust
Loan Contract (hereinafter referred to as “loan contract”) on the same
day of signing the PT contract, and registered the mortgage to secure
the lender’s rights accordingly.
Kunshan Chungao kept performing its payment obligations but
failed to meet the payment requirements in September 2012. Anxin
Trust brought an action against Kunshan Chungao on the basis of theloan contract, claiming for the payment of remaining loan principal― 161 ―

信託法研究第40号（2015）(RMB 128.4 million), and a liquidated damage of RMB 5.385 million. Kunshan Chungao only agreed to bear the default liabilities of the property
trust contract because the loan contract was only signed to facilitate
the mortgage registration and therefore not binding. Under the property trust contract, Kunshan Chungao was only obliged to pay a penaltyof RMB 10 million.
The court of first instance, Shanghai Second Intermediate People’s
Court9, held that, on the one hand, the loan contract was signed after theconclusion of the property trust contract; on the other hand, evidences
showed that the parties were performing the property trust contract,
rather than the loan contract, and therefore the dispute between theparties shall be a business trust dispute government the property trust
contract. The court therefore decided in favor of KunShan Chungao.
The appellate court Shanghai High People Court10 supported the courtof the first instance in its judgment: (1) the dispute between the parties
shall be solved on the basis of the property trust contract; (2) the mortgage and personal guarantee shall be valid and enforceable.
The court further held that right to the income of assets is qualified to be the trust property. That is a great relief for the business. As
mentioned in the previous part, due to the lack of trust registration
system, and more importantly, due to business considerations (the settlor in most circumstances is not willing to transfer the full title of thereal estate development project to the trustee for tax reasons, etc.), andtherefore in most real estate trusts in the form of PT, the trust property is the right to the income of the real property, rather than the real
property.

9 上海市第二中级人民法院（2012）沪二中民六（商）初字第7号民事判决。
10 (2013）沪高民五（商）终字第11号民事判决书。

― 162 ―