The Research Of Trust Position Under China’s Financial Separated System

1. The definition of concepts involved in the paperIn law,"trust" and "finance" are two different concepts. The trust, as a main type of modern property management system, is property management system based on property benefit rights, control rights, management rights and other rights under the separated system. The finance is a behavior for financial intermediation. The system and behavior are obviously not in a coordinate relationship but in a cross relationship. Therefore, in the extension of these concepts, trust industry and finance industry are one kind of cross relationship:the trust is the application area of the trust system, while the finance is the business area of wealth financing.In China, currently there are two different concepts:nominal trust and real trust. When we talk about the trust, we always think of the past trust companies. Because don’t necessarily operate the trust business, so I call them the nominal trust. The financial institutions such as commercial banks, security institutions, insurance companies and trust companies apply the trust theory to develop the agency financing business, the fund business as well as the occupational pension and the trust business, and since they have the real meaning, they are called the real trust.The trust has the different connotation and denotation in the law’framework and practice in China, a progressively larger extension relationship going as follows:(1) the trust industry in the financial separated system in China:the trust business held by the trust companies;(2) the real financial trust:the financial institutions which develop the trust business in the form of agency financing, the trust, the fund, and the occupational pension such as the commercial banks, the trust companies, insurance companies, security companies;(3) the business trust defined by the "The Trust Law" in China, including the financial and non-financial trust business;(4) the trust defined by "The Trust Law" in China like the civil trust, the business trust and the charitable trust. In this paper, in the financial separated system in China, it is wrong to limit the concept of "trust" to item (1); instead, it should be amended to those mentioned in item (2).2. The research frameworkThe paper builds the frame of research around the theme-"the research of trust position under the China’s financial separated system", which includes positioning expression, positioning analysis, positioning influence, positioning amendment etc. The whole frame discusses four issues forming research logic of progressive relations. The four questions are as follows:Question1:How to fix the position of trust under the selection and reform of the China’s financial separated system and what problems to be reflected and showed? The argument in the paper that we put forward is the present problem on trust position, which will be expounded in Chapter3.Question2:How to fix the position of trust in countries which have fully developed the financial separated system, such as the USA, Britain and Japan etc, and why we have the wrong position in China? It is in the paper that this point should be expounded and clarified, according to the interrelated argument on the trust position problem with existence. We reach the conclusion about our wrong position of trust in China and analyze the reasons for this. That will be expounded in Chapter4.Question3:what influence the wrong position will have on the development of the trust companies, banking business and agency financing market? Through analyses on the impact of our wrong trust position, we propose the significance of amendment. That is expounded in Chapter5.Question4:How to amend the wrong trust position in China and to solve the questions left over by history? It is the conclusive ideas and suggestions in the paper. That is expounded in Chapter6.3. The text structureThe topic of this article is set in the financial separated system. Provided in the financial mixed system or a system moving toward it, the research would make no sense.Since the research structure has to be built on the financial separated system, the paper should explain the system and make a judgment about the development direction and the selection logic of global financial system, as well as the reform direction and the selection logic of China’s financial system. Also, we will assess general theory and special issues on reform of China’s financial system, thus the research basis for the selected topic "the research of trust position under China’s financial separated system" will be built and some relevant issues will be answered.The paper has six chapters:Chapter1-the introduction of the background and the significance of the topic and explanation of the research methods and the main innovation; Chapter2-"literature review and related studies" in which we sort out and search for relevant grounds to support the arguments; Chapter3-"selection of China’s financial separated system and the trust position" that answers the choice theory and reform direction of China’s financial system by discriminating and concluding development direction and the selection logic of financial system in the western countries, and some main questions about the trust position in the China’s financial separated system will be put forward; Chapter4-"analysis on the wrong trust position in China’s financial separated system" in which we consult and certify the trust position in the western financial business, and reflect on the reasons; Chapter5-"the impact of trust positioning error on China’s financial business development" in which we analyze the major impacts of the wrong position on the finance development in China; Chapter6-"suggestions for revision on the trust position in the China’s financial separated system" in which we put forward the importance of amendments and some major reform measures.4. Studied thinking and main contents(1) The study on financial systemBy analyzing the reform of financial system in the major western countries, we abstract "the dialectical concept of development" on reform of financial separated system and the global "concept of financial dual system", and in the frame of the reform we analyze the logic of financial system selection in every country and give the general conclusion. The German Universal Bank’s mixed-model is based upon security and seeking for efficiency but the American sector-model just goes by contrary. In this selection logic, in China we have to select the financial separated system that bears a construction with "security priority and efficiency consideration" Judging from the development of western financial system, global financial development is not to satisfy the view of most scholars and industry personage-"global banking business is transforming financial separated system to mixed system". By determining the definition standard and the section logic of the financial separate and mixed system, the article explains the financial separated system in USA as a representative which is terminated but has the trend of perfection in dialectical development of "negation of negation". The methods of analyses accord with American financial development and supervision status, and are able to well explain American financial system state of "mutual holdings, separate operation" and those in other countries such as Japan and Britain. And we also can explain the mixed system on behalf of the European Universal banking model and obtain the conclusion that the world can determine the direction of its development in the "dual system of finance". In the meantime, this analysis method can explain China’s financial system state of "mutual holdings, separate operation", and integrate China financial system into the global dual system of finance by selecting the path of financial system reform and development on the basis of necessary logic.(2) The research on trust positioningUndoubtedly, the paper states it is right and scientific to select the reform direction of financial system, but the separate reform of trust is wrong. Tracing the fundamental reasons, in the reform of the trust company in the1990s, the paper argues the hypothesis that the trust company is trust business and the trust business is one of banking business cannot hold, that is to say, the hypothesis that the trust and banking, insurance, securities are the four pillars of financial business in parallel is wrong.In this paper, there are the methods that extract substantial trust business from the trust companies in the year, the purpose and the background of the establishment and the main business content of the trust companies, through which we define the trust companies called the financial institutions. It is proved that China’s trust companies in the1980s and1990s are universal banks whose main businesses are banking, securities and industrial investment. The universal banks have the financial mediation function between the commercial bank and the investment bank, so it is the financing channel which connects the money markets. capital markets and industrial markets. The trust companies, as universal banks, and professional banks which function as universal banks, together push credit funds to flow from banks to the security market and the real estate market, and then lead the economic and financial business to chaos. While China’s trust companies in the1980s and1990s have the name of trust but not in fact, and have no function of the trust on the whole. Social economy and the law lack the qualifications for outer environment supporting development of the trust business, including trust property having independence and separate property right as well as the law of protecting and normalizing trust acts.From this concept of view, the universal bank model of the trust companies and professional banks is responsible for the financial business chaos in the early1990s, but the chaos has nothing to do with the trust business in the21st century. Now that China has no substantial trust business in the early1990s, how can we distinguish the trust? That is to say, in the reform of financial system the same year, even if we can separate the trust companies functioning as universal banks, we can only call it "the trust company business" not "the trust business", because there is no true "trust" at that time.The paper raises the error of the trust separation in the reform of China financial separated system in the year, and we hope the innovator and decision maker fix the bug, mainly because in the early21st century China’s private wealth accumulated in large number pushes the three big financial institutions, namely the banking industry, security industry and insurance industry to develop large financing business. It forms substantial trust business because of application of the trust theory. The trust business and the financing business have conflict with financial law in related separation clauses-"Commercial Bank Act","Securities Law","Insurance Law". The trust business is prohibited by those laws, so it leads to lack of suitable universal tool of property management in China’s financial institutions and we have to face the awkward dilemma involved the group infraction of law. On the other hand, the core of the trust business is trust property; only there is large number of property provided for trusting can the trust business be able to develop. Therefore, the trust companies are authorized to specialize in the trust business by the law in China, but in the financial separated system, the trust companies cannot operate the financial business from banking, securities and insurance. Lacking support from financial wealths, the trust function is not useful and highly valued.In the reform of financial system, the wrong separation of trust not only hinders the application of the trust theory in the economy and financial business, but also hinders the transformation and development of the financial institutions and hinders financial institutions mentioned above to transform traditional and single business to intermediary business comprehensive institutions with agency wealth management. On the other hand, the trust companies having trust business franchise cannot get enough support of financial resources, so the marginalized trend of wealth management companies having trust license is very obvious and the problem of adverse selection and channels rent is more serious. Referring to the supervision standards of the American hedge fund on the trust companies in China, parts of trust companies’long-term development prospect are grim because of constraint from adverse selection in the market. In the view of this, incompatible contradiction between application of trust theory and development of financing market has taken shape in China’s financial business, and the contradiction badly hinders the development of agency financing market which is based on the trust system in China’s financial business and also hinders the development of the trust and financial business.(3) Suggestion to amend the trust positionBy referring to the development histories and present conditions in America, Britain, Japan and Taiwan (China), the paper argues there are no other countries and regions with developed trust which set the trust as an independent financial business, and there is no glorious history of trust which develops independently of banking, insurance and securities. The trust relationship is the legal relation with the center of property; when being broke off the subject of wealths, the trust relationship would disappear. Having the same or similar system in the countries and regions, China cannot create from the root; the trust in China is impossible to exist independently from the big three financial and non-financial property management. The trust in China should be implanted in the three big financial and non-financial institutions. Therefore the innovator and decision-maker must face and re-think about the history to make the trust, especially the business trust, to get the right and scientific position in order to push the sound development of the agency financing market in China by the trust theory and system in China’s financial system.In addition, the paper discusses the major wealth management system which includes the trust system and the partnership system, analyzes and proves the existing chaos of concepts. As it is known, the latter-day financial wealth management has three types of partnership, corporation and contract system. Corporation refers to corporatist-type trust, including U.S. mutual funds, U.K. investment trust and Japanese investment corporate body; Contract system refers to contractual-type trust including U.K. Unit trust, Japanese fund trust and Securities investment fund in China; Partnership refers to the limited partner company, but the general partner company rarely applies wealth management. In the paper there are misunderstandings in corporation system. Some government sectors and scholars reach an agreement that the corporation is the limited company set up analogously according to the "Corporation Law" which badly distorts the meanings of "corporation" in the wealth management system.The paper shows that in the current law background and with the risk controlling requirements, the only application of the property management system can only be contractual-type trust in our three big financial institutions, and we cannot preclude the possibility of introducing the corporatist-type trust such as Japan. However, the financial institutions cannot apply the limited partnership system, and cannot manage the wealth for the customers by taking the unlimited liability general partner in the limited partner company. Therefore, reorientation of the trust in China’s financial industry plays an active role in promoting the business transition of financial institutions and development of the financial industry.Finally, the paper puts forward some concrete suggestions of amendment on the trust position in China’s financial system. Four suggestions are listed below:to dismantle the regulation of the trust separation on legislation; to establish the standard and system of the access to the trustee system; to build rigorous firewall between traditional financial business and agency financing business; to transform the trust company into the banking or security institutions, etc.5. The main pointsThere are some contentious views in the paper such as "the dialectical concept of the development of the financial separated system","the concept of non-trust of the trust and investment company","the wrong concept of the trust separation","the concept of the dubious trade collective breaking off the law","the concept that the trust companies are back to the banking and securities". We visibly advance these ideas, and also give the opinion and proof for these ideas in this paper. It is hoped that China’s financial industry and the trust and financing market both have a healthy development. This is where the innovation and value of this researches lies in.