China prepares for question of trust

The potential default of a trust product - the first of a financial instrument in China - would be a necessary step to providing investors with the proper tools for risk assessment

This year looks set to be an unsettled one for China’s financial markets as the government starts to deal with its debt issues, including the possibility of allowing the default of certain products.

Usually, the government would step in to guarantee any loss incurred in financial markets but Beijing appears determined to continue its reforms and instill proper risk pricing, making a default much more likely.

One reason for the change is that the government has made noises that it would let market principles play the decisive role in pricing and risk-finding, and meddling in the default process contradicts this.

The other reason is...

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