In-house: Chinese bond trustee system must improve

Author: Karry Lai | Published: 12 Feb 2020

According to three in-house counsel and fund managers, authorities must do more to improve China’s bond trustee system to help mitigate default risks, despite other measures in place designed to do so. The country’s bond defaults shot up to $18 billion in 2019 and are expected to surge in 2020 as the economy continues to slow down.

The current bond trustee system in China has a place in serving the local role for local conditions but compared to underwriting fees in other jurisdictions, they remain low and some may even take on work for no fees. "It’s an onerous role to be a bond trustee," said a fund manager at a Chinese bank. "They are not paid a lot, but are obligated to do a lot."

The bond trustee system is one of the tools in place to manage risks of defaults but is only currently used...