Barclays Asia Themes Financing China - in Orderly Default We Trust

Cross Asset Research
10 March 2014
Asia Themes
Financing China In (orderly) default

we trust
EQUITY RESEARCH
Asia Ex-Japan Banks
May Yan
+852 2903 4756
may.yan@barclays.com
Recent cases of near-default among bank-distributed trust products have raised

concerns over potential risks in the trust sector and how banks might be affected. In
this report analysts from our equity, credit and rates research teams: 1) summarize the
troubled trust products of recent years; 2) analyze near-term risks faced by the trust
sector; 3) discuss the implicit guarantee issue; 4) estimate China banks exposure to trust
risks; 5) discuss the risks presented by the coal sector and the outlook for coal pricing and
funding; 6) look at the knock-on effect for the real estate sector; 7) and assess the impact
on credit and rates pricing. We believe an orderly trust default is possible and expect the
central government to push reform in 2014.
Trust failures could reduce banking sector net profits by 6-9%, under our scenario
analysis: As per the estimates of equity research banks analyst May Yan, under a severe
scenario, trust failures could reduce banking sector net profits by 9.2%/6.2% in 2014 if
potential trust loss were to spread over the next 2/3 years. In addition, we also expect
average interest rates on trusts to rise, and total social financing (TSF) and trust asset
growth to slow.
Barclays Bank, Hong Kong

Asia ex-Japan Metals & Mining
Ephrem Ravi
+852 2903 4892
ephrem.ravi@barclays.com
Asia ex-Japan Real Estate
Alvin Wong
+852 2903 4535
alvin.wong@barclays.com
ASIA CREDIT RESEARCH
Christina Chiow, CFA *
+65 6308 3214
christina.chiow@barclays.com
Equity Research: Trust defaults may lead to short-term negative sentiment in the
market, but would remove an element of overhang on China bank stocks and be good
for them in the long run. The coal industry suffers from excess leverage and has
approximately 8% (Rmb130bn) of total sector debt in trust products, but poses no
systemic threat to the financial system. The real estate sector has Rmb1.0tn of
exposure to trust products, and will be exposed to increased funding costs, which will
accelerate consolidation one of the governments planned objectives for the sector.
Credit Research: Improvement in property developers liquidity and a more diversified
funding base over the past three years has reduced exposure to trust products to 10% of
total debt. However, pockets of risk still sit with smaller developers in the high-yield space.
Credit Strategy: If Chinas banks do share losses on trust products, ratings pressure
could increase, and downgrades would weigh on investor sentiment, especially for USD
bond issuers. Our credit strategist remains cautious on the bonds of Chinese banks.
Rates strategy: The PBoCs move to a neutral stance in 4Q13 may have pre-empted
some fallout from trust defaults this year. Despite this, allowing defaults on trust
products would lead to a re-pricing of risk premia, putting upward pressure on interest
rates with the increased demand for liquidity creating spikes in repo markets.
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
This research report has been prepared in whole or in part by equity research analysts based outside
the US who are not registered/qualified as research analysts with FINRA.
FOR ANALYST CERTIFICATION(S) PLEASE SEE PAGE 29.
FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 29.
FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 30.
Lyris Koh *
+65 6308 3595
lyris.koh@barclays.com
ASIA CREDIT STRATEGY
Krishna Hegde, CFA *
+65 6308 2979
krishna.hegde@barclays.com
RATES STRATEGY
Rohit Arora *
+65 6308 2092
rohit.arora3@barclays.com
*These authors are members of the Fixed Income,

Commodities and Currencies Research department
and are not equity analysts.
Barclays | Asia Themes
INTRODUCTION
Equity Research: China trusts
ASIA EX-JAPAN BANKS
Industry view: NEUTRAL
May Yan
+852 2903 4756
Sean Hung, CFA
+852 2903 4799
sean.hung@barclays.com
Mimi Kong
+852 2903 4671
mimi.kong@barclays.com
Key topics Q&A

Q. Are troubled trust products something new?
A. Not really
Three months into 2014, two troubled trust products China Credit Trust/ICBCs
Chengzhijinkai #1 and Jilin Trust/CCBs Songhua River #77 have drawn widespread
market attention to Chinas trust sector, raising concerns over the impact on banks and the
overall financial system. We observe, however, that near-default of trusts is not something
new. Since 2012 there have been at least 22 reported cases of troubled trust products
amounting to RMB13.7bn in total assets according to media reports (see Figure 1), which
accounts for only a small proportion of the total figure of RMB10.9tn in outstanding trust
assets by end-2013, according to the China Trustee Association.
In our view, the key focus from a banking sector perspective is the unbroken implicit
guarantee in the financial system, which implies extra contingent risks on China banks,
especially as asset quality is likely to begin deteriorating amid the current economic
slowdown. In particular, we believe the reason recently troubled trusts have drawn such
interest include: 1) banks involvement in the trusts; 2) the large size of the trusts and
borrowers liabilities; 3) concentrated risks in the coal sector; and 4) rising concern over the
broad asset quality in Chinas financial system.
While many of the troubled trusts have technically defaulted by missing payments due or
incurring interest losses, there has hardly been a case where a trust product has defaulted
on principal. The Chengzhijinkai #1 was bailed out at the last minute by an unidentified
third party and, according to recent reports (eg, Wallstreetcn, 27 Feb 2014), investors of
Songhua River #77 are likely to be paid first, with money from the borrowers guarantors.
Q. Why might 2014 be special?

A. Increasing pressure from maturing trusts
We believe this year may be particularly challenging for the trust sector because large
numbers of trusts are maturing. On our estimates, for collective trusts which we believe
are riskier than single trusts and more likely to require enforcement of implicit guarantees
there is a total of RMB1.1-1.3tn in interest and principal payments due in 2014. For the
whole trust sector, we estimate that RMB4.5tn in products will mature this year, up 77%
compared to the actual matured amount of RMB2.6tn in 2013.
In addition, according to data from Trust-Use, we observe that the average maturity of
collective trusts has declined since the second half of 2011 to less than two years, which
indicates that the borrowers of trust loans would have to roll over their debt more quickly;
otherwise they could face liquidity problems and become financially stressed. We believe
the increasingly difficult liquidity situation will likely lead to defaults and thus expose risks in
the trust sector.
Q. How did recently reported trusts get into trouble?

A. Sector-specific problems with coal companies
Both the troubled Chengzhijinkai #1 and Songhua River #77 are trust loans to coal
companies in Shanxi province. In our view, these two are not isolated cases but rather
reflect the difficult conditions faced by coal companies in the whole sector, especially those
in Shanxi.
10 March 2014

We believe the current situation of the coal sector was largely due to the reform initiatives
the local government carried out in 2008-09, which have led to: 1) high investment and
merger & acquisition activities resulting in large amounts of debt; 2) maturity mismatch in
debt structures of coal companies; and 3) unsolved ambiguity and disputes regarding coal
mine rights and ownership. Moreover, the decline in coal prices has significantly hurt the
sectors profitability and the high funding costs of trusts may have exacerbated the tighter
liquidity situation. Hence, we believe the coal sector contains high risks and that there might
be more coal-related defaults going forward.
Q. Is the coal sector a systemic risk?

A. Probably not
While we believe the coal sector is of particularly high risk, we do not consider the sector a
systemic threat to Chinas financial system. On our estimates, by the end of 2013, total
interest bearing debt (IBD) of the coal sector was approximately RMB1.6tn, which consisted
of RMB1tn of bank loans, RMB460bn of bonds and RMB130bn of trust products. These are
still small amounts compared to total banking system loans of RMB 71.9tn, total
outstanding corporate bonds of RMB 8.4tn, and total trust assets under management of
RMB 10.9tn at end-2013.
We believe risks in the coal sector are unevenly distributed geographically, and we identify
Shanxi, Inner Mongolia and Shaanxi as the provinces that would be most affected by a
downturn of the coal sector. Nevertheless, after examining local fiscal conditions, we believe
governments in these regions have the capacity to bail out the sector in case of serious
problems and prevent any knock-on impact to the local economies or the financial system.
Q. What might happen next?

A. Orderly default is possible and would be a good first step for reform in our view
While it may have protected the public interest in certain cases, we believe sustaining the
implicit guarantee for trusts has multiple negative effects on Chinas financial system,
including diverting investors awareness of risks, incentivizing inappropriate sales practices
by banks and trust companies, and compromising authorities policy targets. Breaking the
implicit guarantee behind trust products appears to us to be a necessity, and we believe it
would be good for the banking sector in the long run, despite a short-term negative impact
on market sentiment.
We think an orderly default is possible, as risks are likely to be unevenly distributed across
different sectors and regions. With more proper risk awareness cultivated, defaults could
help squeeze funds from troubled sectors to those with better asset quality, and thus
enhance risk pricing in the financial system. In our view, the government will likely push
reform at a gradual pace, by letting investors bear some, but not all, loss of principal, for
example. Should this happen, we expect the average interest rate on trust products to rise
and growth of the trusts sector and TSF to slow, at least in the short term.
In our view, the government might be more comfortable with allowing trusts to default
when other regulations, including more comprehensive shadow banking rules and a
financial safety net, such as the deposit insurance system, are already in place. We expect
an accelerated pace of reform in 2014, likely after the National Peoples Congress
Conference in March.
Q. How might risks in the trust sector be quantified for China banks?
A. We estimate a likely 6-9% decline in net profits for the banking sector, higher
trust interest rates and slower TSF growth
We estimate that by end-1H13, China banks exposure to the trust sector was
approximately RMB6tn and is riskier than the loan portfolio. In case of potential trust
10 March 2014

defaults, we believe the banks would need to bear full losses on trusts underlying their
WMPs but might only need to take partial responsibility for trusts they distributed.
On our estimates, if all risks contained in banks trust exposure were to materialize and
losses spread over three years to happen, net profits of the whole banking sector would be
reduced by 6.2%/5.6%/5.2% in 2014/2015/2016. Under a more severe scenario, whereby
the risks and losses to happen within two years, we estimate that sector net profits would
be reduced by 9.2/8.5% in 2014/2015.
In addition to a direct impact on banks net profits, we believe trust defaults would also
push up average interest rates on trusts due to a change in risk awareness, which might
worsen asset quality of loans as some companies become financially stressed due to greater
funding pressure.
In the meantime, total social financing (TSF) growth is also likely to slow as demand for
trust products subsides, at least in the short term. Assuming a 10% annual growth rate in
2014 and 5% of trust loans as a percentage of TSF, we estimate that net new trust loans
would be RMB949bn in 2014, down 48% y/y compared to RMB 1.83tn in 2013.
Stock implications for China banks

We believe BOC (OW) has relatively less exposure to trust products as: 1) BOC has fewer
domestic branches than its big bank peers, hence less distribution capability; and 2) BOCs
ex-Chairman has been less enthusiastic about expanding off-balance sheet products in the
past few years. We expect more information to be disclosed at the 2013 earnings briefings
during results season at end-2013. BOC remains a top pick in our China banks coverage
universe.
10 March 2014
CONTENTS
INTRODUCTION ................................................................................................. 2
Equity Research: China trusts .................................................................................................................. 2
EQUITY RESEARCH: CHINA BANKS .............................................................. 6

Risk of trust products under the spotlight ............................................................................................ 6
2014 faces increasing pressure of maturing trust products ............................................................ 8
Recent coal trust concerns trace back to industry reform initiatives a few years ago ............. 10
Coal sector does not pose systemic risk ............................................................................................. 12
Trust default: an important step to break implicit guarantees ...................................................... 16
Impact of trust sector on China banks and TSF ................................................................................ 17
Further reading ......................................................................................................................................... 19
EQUITY RESEARCH: CHINA COAL...............................................................20

Coal prices to remain range-bound in the near term....................................................................... 20
Lower domestic coal supply as producers face reality .................................................................... 20
Positive short-term indicators of coal demand ................................................................................. 21
Stock pick ................................................................................................................................................... 22
EQUITY RESEARCH: CHINA PROPERTY .....................................................23

Short-term pain inevitable but risk is manageable ........................................................................... 23
CREDIT RESEARCH: CHINA PROPERTY .....................................................25

Sensitivity to domestic funding............................................................................................................. 25
Ratings risks likely to increase ............................................................................................................... 26
RATES STRATEGY ...........................................................................................27

Higher rates volatility the new normal ............................................................................................. 27
10 March 2014
EQUITY RESEARCH: CHINA BANKS

Risk of trust products under the spotlight
ASIA EX-JAPAN BANKS
Trust product defaults are not something new
Industry view: NEUTRAL
Recently, two cases of troubled trust products China Credit Trust/ICBCs Chengzhijinkai
#1 and Jilin Province Trust/CCBs Songhua River #77 have drawn widespread media and
market attention (see our report, China Banks: China Credit Trust raises concerns over
China's trust industry overall, Jan 27 2014 and China Banks Daily, Feb 13 2014). According
to the latest media report (Wallstreetcn, 27 Feb 2014), investors of Songhua River #77 have
been told by a CCB branch that nine guarantors of Liansheng Group, the borrower of the
trust, will provide RMB1.5bn in funds that will be used to settle collective trust payments as
a priority. In our view, it is likely that the collective trust liabilities of Liansheng Group will be
eventually paid off, albeit with some payment delays and interest losses.
May Yan
+852 2903 4756
Sean Hung, CFA
+852 2903 4799
sean.hung@barclays.com
Near-default of a troubled trust product is not something new. Since 2012 there have
already been multiple media reports of troubled collective trust products and some of
them have technically defaulted by missing due payments on maturity dates. Nevertheless,
apart from some cases of interest losses, there have been hardly any precedents we know
of, of a default on principal payments in the trust sector yet.
Mimi Kong
+852 2903 4671
mimi.kong@barclays.com
FIGURE 1
China trusts: Recent reported cases of troubled trust products
Issuance Maturity
date
(yrs)
Aug-10
2.5
Amount
(RMB
mn)
710
Expected
annual Trust
return company
9-13% CITIC Trust
Type
Collective
Borrower
Industry
Shielspeare Group Real estate
Investor
loss
No loss
Aug-10
1.5
385
9-11%
Zhongrong
Collective
International
Trust
Qingdao Capland Real estate

Property
Aug-10
285
13.5%
CPFCO Trust Collective
Sep-10
547
8.2%
Zhongjinjiacheng Real estate Interest

Property
loss
Investment
Xisensanhe Group Agriculture Interest
loss
Jan-11
1,180
Jan-11
850
9.8-12%
New China
Trust
Feb-11
3,030
9.5-11%
Mar-11
200
9-10.5%
Apr-11
400
10-11.8% Anxin Trust
Huaxin
Collective
International
Trust
9-15.75% Anxin Trust Collective
Zhejiang Jinlei
Property
Real estate
Collective
Shanghai Lurun
Property
Real estate
China Credit
Trust
Collective
Shanxi Zhenfu
Group
Mining
Jilin Trust
Collective
Nanjing
Mudanyuan
Properties
Wenzhou Taiyu
Property
Real estate
Real estate
No loss
The trust was terminated before maturity and

paid in full with funds provided by the
guarantor.
No loss
Trust paid investors on maturity date, but said
that the source of funds was not its own but
another institution.
Interest
The borrower could not make due payments
loss
and the collateral was worthless due to
unsettled mining rights issues. Near maturity
date, an outside investor took over the trust
and investors were paid full principal but only
partial interest.
No loss but Payments were delayed for 8 days until
delayed
Huarong AMC took over.
Anxin Trust elicited a third-party property

developer to bail out the trust when it could
not make payments in April 2013.
May-11
1.5-2
1,164
10-14% Zhongrong
Collective
Ordos Kaichuang Real estate No loss but The trust company terminated the product in
International
Property
delayed
May 2012 and investors were paid in early
Trust
2013.
Source: News sources, including: JRJ, Netease, Sina Finance, Investor Newspaper, China Business Journal, China Securities, Wealth Management Weekly, Economic
Observer, 21chb, Guangzhou Daily, Shanghai Securities; Barclays Research
10 March 2014
Collective
No loss
Note
The borrower could not make payments on
maturity, and CITIC Trust subsequently
initiated a settlement process. CITIC Trust paid
the retail investors first and, by May 2013, it
had claimed a total of RMB650mn through
selling collateralized land assets, which fully
covered the principal and interest payments.
Zhongrong International Trust paid investors
on maturity date and filed lawsuits to sell the
borrowers collateralized land assets. The value
of the land had reportedly declined
significantly since issuance of the trust.
In Aug 2013, CPFCO Trust paid investors
principal and only 8% interest, whereas the
expected return was 13.5%.
The trust paid all principal but not interest for
the last period.
No loss

FIGURE 1 (CONTD)
Recent reported cases of troubled trust products
Issuance Maturity
date
(yrs)
Jun-11
2
Amount
(RMB
mn)
871
Expected
annual Trust
return company
Type
Collective
11-15% Zhongrong
International
Trust
10.5-13.5% Minmetals
Collective
International
Trust
15.2% Guolian Trust Single
Jun-11
1.5-2
400
Jul-11
1.5
250
Aug-11
1.5
310
10-13%
New China
Collective
Trust
10.5-11.5% Sichuan Trust Collective
Borrower
Industry
Langfang
Real estate
Hairunda Property
Shanghai
Real estate
Rongteng
Property
Shenzhen Zhongji Real estate
Industry and
Commerce
Shandong Huoju
Property
Zhejiang
Yangchengjindu
Property
Laiwu Nanshan
Construction
Material
Real estate
Investor
loss
No loss
No loss
Interest
payments
delayed;
in lawsuit
NA
Note
Due to slump in Langfang property market,
borrowers project kept being postponed. The
trust terminated the product and paid
investors only one year after issuance.
The trust paid investors on maturity date and
is currently filing lawsuits against the
borrower.
The single trust investor, Jiangsu Yaxing, had
yet to receive interest payments of the trust as
of 3Q13 and initiated disposal auction process.
Undergoing lawsuit since Nov 2013 when the

borrower could not make payments.
Sep-11
1.5
100
Real estate No loss
An outside investor took over the trust and
initiated restructuring process with the
borrower. Investors were paid in full.
Nov-11
1.5
150
10.5-11.8% Jilin Trust
Collective
Construction No loss but The borrower reportedly forged fake projects
Material
delayed
to get loans, which exposed weak internal
controls of Jilin Trust. Investors were
eventually paid in full in March 2012.
Nov-11
1.5-2
645
8-10.5% Hua'ao
Collective
Dalian Shide
Construction NA
Hua'ao sued Shide as its owner Xu Ming was
International
Plastic
Material
investigated for economic breaches. In
Trust
Construction
addition, the trust was suspected of providing
Material
loans to Shide Groups real estate projects,
instead of materials. Reportedly settled outside
of court.
Dec-11
2
200
11%
SDIC Trust
Collective
Shanxi Tailai
Mining
NA
The borrower was exposed by media reports
Energy
to have questionable qualifications, in terms of
both poor operating records and illegal mining
rights transfer. SDIC Trust was accused of
improper due diligence.
Dec-11
1
1,334
9.5-11% CITIC Trust
Collective
Sanxia Quantong Material
No loss
CITIC Trust was going to dispose of the
Coating Plate
troubled trust through public bidding.
However, an outside private enterprise
eventually took over and investors were paid in
July 2013.
end-2011
NA
31
NA
Zhongtai
Single
Shanghai
Real estate NA
The borrower went bankrupt and the owner
Trust
Gaoyuan Property
reportedly fled. The investor was a trade
company in China. The borrower missed the
third and fourth interest payments, and the
trust filed a lawsuit against it in Dec 2012.
20112
97
9.8-12% Jilin Trust
Collective
Shanxi Liansheng Mining
NA
Liansheng Group, the borrower, filed for
2012
Group
restructuring in Nov 2013. Jilin Trust is one of
many financial creditors of the group. The
local government is handling the restructuring
process at. Collective trusts are likely to get
higher seniority in the settlement.
Apr-12
1-2
570
9.5-11% Shaanxi
Collective
Yufeng Fertilizer Chemical
No loss
The borrower showed signs of trouble at endInternational
2012. Shaanxi International Trust paid
Trust
investors with its own funds in Aug 2013.
Source: News sources, including: JRJ, Netease, Sina Finance, Investor Newspaper, China Business Journal, China Securities, Wealth Management Weekly, Economic
Observer, 21chb, Guangzhou Daily, Shanghai Securities; Barclays Research
Recent cases reveal potential risks for China banks

The reasons that the recent two products were highlighted, in our view, include:
Banks involvement in the trusts: Even though technically ICBC and CCB acted only as
distributor of the trusts, according to media reports the banks were under great
pressure to bail out the trusts due to an assumed implicit guarantee and possible
misconduct in sales practice. This raised awareness of the extra risk exposure of China
banks to the trust sector.
Large size of the trusts and borrowers liabilities: In addition to Chengzhijinkai #1s
relatively large size of RMB3.03bn, the borrower of Songhua River #77, Liansheng
Group, used to be an influential local corporate and had nearly RMB30bn of financial
debt owed to multiple trusts and banks.
10 March 2014
Concentrated risks in the coal sector: Both of the troubled borrowers were coal
companies in Shanxi province. This has led to concerns over the coal sector as a whole
and its impact on China banks.
Rising concern over broad asset quality in Chinas financial system: Rapid expansion
of the trust sector in recent years has likely meant the lending of large amounts of credit
to some risky sectors. As economic growth slows, asset quality in the financial system,
especially the trust sector, is likely to deteriorate.
In 2014, we believe the risks accumulated in the trust sector during its rapid expansion are
more likely to be exposed, and China banks might be directly as well as indirectly impacted
by potential defaults.
Direct impacts: We believe in the case of a potential trust default, banks would be under
pressure to share losses as they are often assumed to be providing implicit guarantee for
the products they distribute. In addition, the on-balance-sheet trusts and underlying WMPs
are likely to be riskier than normal loans, in our view.
Indirect impacts: Allowing defaults would likely alter risk perceptions in the market, in our
view, thus potentially pushing up interest rates on trusts and slowing the trust sectors
growth. Consequently, some companies would likely face greater funding pressure and
become financially stressed, which would also negatively affect banks if these companies
had bank loans as a source of funding.
2014 faces increasing pressure of maturing trust products

Collective trusts are more likely to enforce implicit guarantees and pose
extra costs on China banks
In our view, collective trusts may be a greater challenge than single trusts for trust
companies and banks in the near term. We believe that the asset quality of single trusts is
likely to be better, as banks usually use them to lend off-balance-sheet credit to borrowers
they consider relatively safe.
In addition, as investors of single trusts are mostly institutions, when a trust gets into
trouble, it is easier for the trust company to negotiate terms with the institutional investor or
move the case into legal process. In contrast, collective trusts are often distributed to less
risk-tolerant retail investors, who normally request rigid payments and constitute a greater
threat to trust companies and banks reputation. As shown in Figure 1, of the 22 cases
reported in the media, 20 were about troubled collective trusts.
Although the laws and regulations governing trusts in China explicitly stipulate that trust
companies should provide no guarantee to their products, in reality, we believe regulators
would in most cases implicitly request them to make best efforts to ensure payments to
investors.
However, we believe that in the case of large-scale actual defaults of trust products, trust
companies are unlikely to have adequate capital to bear the loss if implicit guarantees are
enforced. In recent years, the trust sector leverage (trust assets under management-toequity ) has risen rapidly, from 23x in 1Q10 to 43x by the end of 2013. Hence, we believe
that as distributors and sometimes initiators of many trust products, Chinas banks might
be asked by the authorities to partly bear any potential losses in order to maintain social
stability. This would results in extra expenses for banks.
As we have observed in the case of Chengzhijinkai #1 and Songhua River #77, even though
the collective trusts were off-balance-sheet, the banks are under pressure from investors,
10 March 2014

the media and local governments to take responsibility, as they are often the sales channel
and initiators of the trusts.
RMB1.1-1.3tn in interest/principal payments of collective trusts due in 2014

We believe 24 months is a good estimate of the average maturity of outstanding trusts. As
shown in Figure 2, we find that quarterly amounts of matured trusts correspond well with
those issued 24 months earlier. Thus, on our estimates, the total number of trusts that will
mature in 2014 should be those issued during 2012, which amounts to a total of
approximately RMB4.5tn, up 77% y/y compared to the actual matured amount of
RMB2.6tn in 2013.
Collective trusts account for only a relatively small proportion of total trust assets. The share
of collective trusts peaked at 28.7% in 2Q12 and has dipped to 24.9% by end-2013,
according to data from the China Trustee Association. Assuming the same maturity
structure of collective trusts as single trusts, we estimate that approximately RMB1.1tn of
collective trusts will mature in 2014, and since trusts usually offer a 10% interest rate, the
total principal and interest payment due we estimate at around RMB1.1-1.3tn in 2014.
Shortening average maturity indicates greater liquidity challenge of

collective trusts
Furthermore, we think the shortening maturity of collective trusts may amplify the pressure.
According to statistics provided by Use-Trust, a third-party trust research agency, since
2011 when quarterly issuance of collective trusts increased in the industry as a whole, the
average maturity of collective trusts has in fact dropped, from a little above 2 years in 2Q11
to under 1.6 years by 4Q13.
In our view, the trend of shortening maturity indicates mounting pressure for maturing
collective trusts in 2014-15, as the borrowers of the trusts would need to turn over funding
sources more quickly, which might lead to more liquidity risk.
FIGURE 2
Assuming average maturity of 24 months yields good fit
with actual data; liquidity pressure mounting in 2014-15
FIGURE 3
Collective trusts account for a relatively small proportion of
total trust assets
RMB bn
RMB bn
1,800
1,600
1,400
1,200
1,000
800
600
400
200
-
12,000
10,000
8,000
6,000
4,000
Actual quaterly maturing trusts

Note: X-axis represents date of maturity.
Source: China Trustee Association, Barclays Research
10 March 2014
Collective trust
Single trust
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
Estimated maturing trusts (issuances preceding 24m)
0
1Q10
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
2,000
Property management trust
Recent coal trust concerns trace back to industry reform

initiatives a few years ago
Both of the recent troubled trust products that had drawn widespread market attention
were trust loans lent to coal companies in Shanxi province which has raised concerns over
the coal sector as a whole. In our view, trust products funding the coal industry may face
particularly high risks in 2014, due to the reasons explored below.
High financing demand resulting from industry reform has caused large
debt accumulation
In an attempt to improve coal mine working safety, eliminate outdated industrial capacity
and enhance industry structure, the Shanxi provincial government launched a sweeping
reform of the local coal industry during 2008-09, which aimed to reduce the number of
operating coal mines in the province and increase production capacity of both coal mines
and coal companies.
In the #10 document titled Notification from the Shanxi provincial government on speeding
up M&A of coal companies issued in August 2009, the government set a target that by the
end of 2010 the number of coal mines in Shanxi would be reduced from 2,598 to 1,000 and
the annual production capacity of a single coal company should be at least 3mt. In addition,
the document also stipulated that all coal mines should upgrade to fully mechanized
mining, instead of using outdated blasting mining technology, with production capacity not
less than 0.9mt per year.
The Shanxi coal industry experienced a huge wave of mergers and acquisitions following
the launch of the reform. In early 2010 the number of coal companies in Shanxi had been
reduced drastically from over 2,200 to 130, with the number of coal mines down from
2,598 to 1,053, according to a media report (Beijing Youth, 21 Feb 2010), meaning that the
average number of coal mines owned by one company increased from 1.2 to 8.1. In
addition, coal mines with annual production of less than 0.3mt had all been eliminated, and
the average production capacity of a single mine had increased to more than 1mt per year.
These M&As, together with the required mining technology upgrades that followed, created
high financing demand for the coal companies. On the back of loose credit driven by
government stimulus plans at the time, outstanding loans to the mining industry grew 35%
y/y in 2009, from RMB 521bn to RMB 705bn, according to data from the CBRC.
50x
43x 43x
41x 42x
45x
37x
40x
35x
30x
26x 27x
23x
29x
31x 31x
33x
25x
20x
15x
10x
RMB bn
450
400
350
300
250
200
150
100
50
-
years
2.2
2.0
1.8
1.6
1.4
1.2
1.0
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
5x
FIGURE 5
Average maturity of collective trusts has been on the decline
0x
Leverage (Trust AUM/Equity)
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
FIGURE 4
Trust sector AUM-to-equity ratio has been rising rapidly
Quaterly new collective trusts (LHS)

Average maturity (RHS)
10 March 2014
Source: China Trustee Association, Use-Trust, Barclays Research
10

Moreover, mining technology upgrades usually take several years to complete. According to
a report in Wealth Management Weekly (23 Dec 2013), of the 11 coal mines of the troubled
Liansheng Group, 8 were still undergoing technology transformation as of late 2013, and
thus were not operating. As credit growth slowed in the years following the stimulus, some
coal companies especially those that were privately owned with comparatively less access
to bank loans began to resort to other funding sources, including trusts and private
lending, in our view. According to Use-Trusts disclosed data, quarterly issuance of miningrelated collective trusts increased sharply since the second half of 2011, peaking at
RMB24.4bn in 3Q11, of which approximately 90% was related to the coal industry.
Maturity mismatch in debt structure of coal companies

While coal companies needed to keep borrowing to support their long-term investing in
mining technology upgrades, their funding was usually short duration, which created
maturity mismatches and subjected them to greater liquidity risk. According to Liansheng
Groups deputy general manager Ma Yongming (as reported in Wealth Management
Weekly, 23 Dec 2013), most of Lianshengs bank loans are short-term, but are used for
longer-term projects that would not generate profits immediately.
Besides bank loans, the maturity of trust loans of coal companies is also mostly short, thus
resulting in large amounts of coal-related trusts being issued between 2011 and 2012 and
maturing recently. According to Use-Trusts statistics, the average maturity of mining trust
products sold in 2011 was only 1.81 years, and in the first half of 2012 was 1.77 years.
High funding costs exacerbated liquidity conditions

In addition, high funding costs for coal companies, especially on trust products, also
exacerbated liquidity conditions, in our view. The Use-Trust statistics show that for miningrelated trusts sold between 2010 and 1H12, the average expected annualized return was
9.2%, 50bps higher than the overall level of 8.7%, which did not include fee expenses paid
to trust companies and banks. Meanwhile, the weighted-average loan interest rate during
the period was 6.8%, 240bps lower than that of mining trust products.
FIGURE 7
Maturity of mining-related trusts is on average under 2 years
FIGURE 6
Mining-related trust issuance increased since 2011
RMB bn
years
30.0
500%
24.4
25.0
400%
20.0
16.1 15.4
15.0
11.5
10.0
5.0
5.4
2.2 2.3
3.8
5.8 6.4
2.50
2.00
2.28
1.86
1.89
1.80
1.63
300%
1.79
1.91
1.64
1.50
200%
100%
1.00
0%
0.50
-100%
3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
Issuance amount
Source: Use-Trust, Barclays Research
10 March 2014
q/q growth rate
Average maturity of mining trusts issued

Source: Use-Trust, Barclays Research
11
Complication of coal mine ownership and mining rights

Lastly, the aggressive wave of government-encouraged mergers and acquisitions of coal
mines during 2008-09 has created some enduring mining rights and ownership disputes in
Shanxis coal industry, in our view. Since many coal trusts use the borrowers coal mines as
collateral, ambiguity in ownership could severely undermine value when liquidation
becomes a necessary option.
As seen in the case of Chengzhijinkai #1, Zhenfu Group, the borrower of the trust, had never
obtained the mining rights for two of its largest coal mines until the repayment crisis was
exposed and the local government as well as financial institutions intervened. Nevertheless,
upon initiation of the trust product collateral was not only used as sole collateral for the
trust, but was also estimated by the trust company to yield a quite safe LTV ratio of 30%.
Decline in coal price caused industry-wise deterioration in profitability

In addition to increasing debt and higher funding costs, the price of coal decreased since its
peak in 2011, significantly hurting profitability of the whole coal mining industry. The
average ROE of A-share listed coal companies has dropped correspondingly, from above
20% during in 2010-11 to only 6% by the end of 3Q13.
Moreover, according to a report by Caijing (11 Nov 2013), as profitability and cash flow of
the industry deteriorated, banks began to reduce their loans to coal companies, worsening
liquidity conditions and compelling coal companies to borrow from more expensive sources
such as trusts and private lenders. Even though local governments issued documents
encouraging banks to keep providing financing support to coal companies, in reality these
efforts were mostly in vain.
FIGURE 8
Mining-related trusts have higher interest rates than bank
loans and overall trust products
FIGURE 9
Coal prices have been declining since 2011, dragging down
industry overall profitability
12.0%
RMB /ton
1,600
25%
10.0%
1,400
20%
8.0%
1,200
6.0%
1,000
15%
10%
800
4.0%
5%
600
2.0%
0.0%
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
Mining trust
Weighted average loan rate
Source: Use-Trust, PBOC, Barclays Research
Overall trust
400
2010-01
0%
2011-01
2012-01
2013-01
2014-01
Price of coking coal (LHS)
Price of thermal coal (LHS)
Average ROE of A-share listed coal companies (RHS)
Source: Wind, Barclays Research
Coal sector does not pose systemic risk

RMB1.6tn of outstanding interest-bearing debt at end-2013
We estimate that as of the end of 2013, there was approximately RMB1.6tn of outstanding
interest-bearing debt (IBD) in Chinas coal sector. We consider this unlikely to have a
significant impact on Chinas financial system (ie, it does not pose systemic risk) even if
asset quality was to deteriorate severely. We estimate the amount of outstanding IBD in the
sector using two approaches, one top-down and another bottom-up.
10 March 2014
12
Top-down approach
According to data released by the National Bureau of Statistics (NBS), as of the end of 2013,
total liabilities of coal companies with total annual revenues above RMB20mn 1 were
RMB3.1tn, up from RMB1.8tn in 2010 at a CAGR of 20.7%. We reference data provided by
the State-owned Assets Supervision and Administration Commission of the State Council
(SASAC), which show that as of end-2012 the industry average IBD-to-liabilities ratio of
SOEs in the coal sector was 51%. Meanwhile, listed companies financials show that their
average IBD-to-liabilities ratio was 53% as of 3Q13.
Based on these figures, we estimate that outstanding IBD of the coal sector was
approximately RMB1,644bn as of end-2013 (Figure 10).
Bottom-up approach
To double check and examine in more detail the breakdown of the coal sectors financial
debt structure, we also adopt a bottom-up approach in estimating the sector IBD figure,
which sums up the outstanding balances of bank loans, trusts and bonds issued by coal
companies.
Our bottom-up approach indicates that the outstanding balance of coal sector IBD was
RMB1,597bn at end-2013, in line with our estimate using the top-down approach.
Outstanding bank loans were RMB1tn as of 2013, accounting for 63% of IBD
According to the CBRCs disclosure, as of the end of 2012 outstanding bank loans to the
mining industry were RMB1.4tn. Based on a sector liability breakdown in the mining
industry, we estimate that the outstanding balance of total bank loans to the coal sector
stood at RMB1tn as of 2013 (Figure 10). According to our estimate, by the end of 2013
bank loans accounted for 63% of total IBD. However, although bank loans are still the
primary funding source for the coal sector, banks share has been decreasing in recent
years, reflecting broad disintermediation in Chinas financial system.
Bonds issuance increased rapidly, with balance reaching RMB 460bn in 2013
Bonds have become an increasingly important funding source for coal companies in recent
years. Growing at a CAGR of 62%, the outstanding balance increased from RMB109bn in
2010 to RMB460bn by the end of 2013. The bond issuance was primarily concentrated in
the interbank market, which took up 88% of the balance in 2013.
Trusts account for a rather small proportion of total coal sector IBD
Estimating the outstanding trust loans lent to a specific sector is tricky, due mainly to
limited available information especially so as single trusts need not to make disclosure. We
make the estimate based on collective trust data provided by Trust-Use, according to which
mining trusts account for 3-8% of the basic industry trusts and most of the mining trusts
issued were to the coal sector. Thus, assuming that coal trusts account for 5% of the basic
industry trusts, we estimate the outstanding coal sector trusts to be RMB130bn as of end2013, based on statistics from the China Trust Association.
As a cross-check, we make another estimate using collective trust data provided by Wind
(note this data set is quite patchy and therefore less useful in its entirety), which has a trust
product sample consisting of 7,185 trusts with disclosed size issued since 2000 (5,542 in
2012 and 2013). By assuming a universal maturity of 24 months, we estimate the balance
of coal trusts was RMB231bn at end-2013, using this sample.
The NBS changed its statistical method in 2011. Prior to the change, the threshold had been RMB5mn. We believe
the change was due to reasonable adjustments concerning inflation and do not observe notable variance in the
sample.
10 March 2014
13

While there is some variance in the estimates under these two approaches, it has no
significant impact on our overall estimate of coal sector IBD, since trusts account for only a
small proportion. We include in Figure 10 our estimates using the first approach based on
the more stable and coherent sample provided by China Trust Association, as Winds data is
patchy, in our opinion, for the earlier years.
According to our estimate, while coal sector trusts increased relatively fast as well, at a
CAGR of 38% since 2010, they still account for less than 10% of total IBD for the whole coal
sector as of end-2013.
FIGURE 10
Outstanding IBD of the coal sector approximately RMB1.6tn, according to both top-down and bottom-up estimates
Top-down
RMB bn, %
Total liabilities of coal companies
2010
2011
2012
2013
1,765
2,213
2,665
Coal sector SOEs' average IBD/total liabilities ratio
49%
51%
51%
3,107
NA
A-share coal companies' average IBD/total liabilities ratio

Estimated total IBD sof coal sector
42%
804
45%
1,054
48%
1,314
53%
1,644
RMB bn, %
2010
2011
2012
2013
Mining industry loans
916
1,152
1,414
Coal sector liabilities as % of that of the mining industry

Estimated coal loans
61%
562
60%
688
61%
863
1,615
62%
1,007
99
195
265
405
(1)
Bottom-up
Interbank market
Shanghai Stock Exchange
(2)
10
24
47
Shenzhen Stock Exchange

Outstanding bonds issued by coal companies
4
109
8
214
8
297
8
460
Outstanding basic industry trusts
995
1,016
50
51
83
130
Bank loans as % of IBD
78%
72%
69%
63%
Bonds issued as % of IBD
15%
22%
24%
29%
Trusts as % of IBD
Estimated total IBD of coal sector
7%
720
5%
952
7%
1,242
8%
1,597
Mining trust as % of basic industry trusts

Coal trust balance, assmuing 5% of basic industry trusts
1,650
2,603
3-8% for collective trusts
Note 1: This is a 3Q13 figure as companies have not published annual results.
Note 2: We estimate the 2013 loan figure assuming the growth rate in 2013 was the same as that of total liabilities of coal companies.
Source: NBS, SASAC, CBRC, CTA, Use-Trust, Wind, Barclays Research estimates
No systemic threat, but concentrated regional risks may deserve attention

Overall, it appears to us that the coal sector does not pose a systemic threat to Chinas
financial system, as its outstanding IBD accounts only for a small proportion of the total.
However, we believe that regional risks concentrated in some provinces, namely, Shanxi,
Inner Mongolia and Shaanxi, deserve concern, due to the high degree of contribution of the
coal sector to the local economies.
According to disclosed data, by the end of 2011, the total coal sector industrial output value
of 26 provinces and municipalities was RMB2.5tn, close to the reported national aggregate
of RMB2.9tn. Of the 26 regions, Shanxi, Inner Mongolia, Shandong and Shaanxi are the top
four provinces with the most coal sector industrial output value, contributing
25%/15%/11%/7% to the national total, whereas the rest account for only 41% combined.
We look at the coal sector industrial added value, which is a component of GDP, to measure
the coal sectors importance in each region. As shown in Figure 12, Shanxi province has the
10 March 2014
14

highest coal sector industrial value added/GDP ratio of 33% among all 13 regions with
disclosed data by the end of 2011, followed by Inner Mongolia, Shaanxi and Ningxia, with
the ratio at 16%/10%/10%, respectively.
Hence, we identify Shanxi, Inner Mongolia and Shaanxi as the three provinces that would be
most negatively affected by a downturn in the coal sector, due to both high production of
coal and local economic dependency on the coal sector.
FIGURE 11
Each regions contribution to the total coal sector industrial
output value, as of 2011
0%
10%
20%
Shanxi
FIGURE 12
Coal sector industrial added value as % of GDP for each
region, as of 2011
30%
0%
10%
20%
30%
40%
Shanxi
Inner Mongolia
Shaanxi
Ningxia
Guizhou
Qinghai
Anhui
Henan
Yunnan
Xinjiang
Fujian
Jiangxi
Beijing
Guangxi
Inner Mongolia
Shadong
Shaanxi
Hebei
Sichuan
Guizhou
Anhui
Tianjin
Heilongjiang
Beijing
Other
Coal sector as % of industrial output value
Source: NBS, Wind, Barclays Research estimates
Industrial added value of coal sector/GDP

Note: Inner Mongolias coal sector industrial added value is estimated
Source: NBS, Wind, Barclays Research
Local governments capable of bailing out troubled companies in coal sector

However, we think that these risks may be manageable, as the fiscal condition of these
regions is general healthy. According to disclosure by the audit offices of each regions, as of
the end of 2012 (except for Guizhou province) the comprehensive debt ratios (which
includes a proportion of guarantee and contingent liabilities) of local governments in these
highly coal-dependent regions are all within safe ranges under 80% (Figure 13). Therefore,
we believe the local governments would have adequate capacity to bail out companies in
the coal sector in case of serious default, and are likely to be able to prevent turmoil in the
financial system.
FIGURE 13
Local governments in coal-dependent regions have moderate debt levels in general, as of
2012
Region
Coal sector industrial

added value/GDP
Comprehensive
debt ratio(1)
Shanxi
33%
53%
Inner Mongolia
16%
77%
Shaanxi
10%
69%
Ningxia
9%
50%
Guizhou
8%
92%
Qinghai
6%
58%
Anhui
5%
53%
Note 1: Debt ratio is defined as outstanding debt divided by total fiscal revenues, including budgetary fiscal income
(tax and fees) and off-budget incomes such as land sale proceeds; comprehensive means that the debt amount
includes proportion of guaranteed and contingent liabilities of the government
Source: Local audit offices, NBS, Wind, Barclays Research
10 March 2014
15
Trust default: an important step to break implicit guarantees

Implicit guarantee on principal has yet to be broken
In the case of troubled China Credit Trust/ICBCs Chengzhijinkai #1, a solution was
eventually reached as an unidentified outside institution intervened and took over the trusts
underlying assets (according to a report by 21cbh, 31 Jan 2014), which generated cash flow
for the trust company to pay off investors. Even though the investors received only 2.8%
interest for the last year, far less than the 9.5%-12% expected return and constituting a
technical default, the principal was eventually fully paid despite the trust product being in
trouble upon maturity.
In the case of Jilin Province Trust/CCBs Songhua River #77, the borrower, Liansheng Group,
is still undergoing a restructuring process. As of 20 Feb 2014 the first five matured tranches
had already technically defaulted by missing payments to investors. Nevertheless, it has
been reported (by Wallstreetcn, 27 Feb 2014) that RMB1.5tn from guarantors of Liansheng
Group will be used to settle collective trust payments as a priority.
During the restructuring process of Liansheng Group, local media (eg, Securities Times, 17
Feb 2014) reported that in order to obtain higher seniority in debt settlement, Jilin Trust,
Shanxi Trust and ChangAn Trust had jointly submitted to the CBRC statements that they
would refuse to accept or implement the restructuring plan if requests were made for their
matured collective trust products to roll over rather than be paid, as bank loans and single
trusts were likely to do. The emphasis on redeeming collective trusts first, in our view,
reflected the government and financial institutions need to pay off and calm retail investors
as a priority.
Implicit guarantee has negative effects on the financial market

We believe that the assumed implicit guarantee in cases of failed trust products has
distorted the risk pricing mechanism of the financial market. While this may have protected
the public interest in certain cases, it has also created moral hazard on the side of retail
investors who customarily assume implicit guarantees when purchasing financial products
from banks, and take the expected yield level above 10% as a risk-free rate. From the
perspective of financial institutions, in order to attract customers they are compelled to
offer high expected returns, often, we believe, with off-the-record promises of principal
guarantee. This has likely led to inappropriate practices in banks initiation, sale and
management process of financial products, in our view.
This kind of misperception of risk not only poses potential threats to the public interest, but
may also compromise policy targets of the regulators. We believe that some credit
generated by these high-yielding financial products might have flowed into less-efficient
companies. Such companies may be indifferent to unsustainably high funding costs
because they simply require funding of whatever sort in order to remain in operation.
As the allocation efficiency of the financial market worsens, overall credit risks within the
system increase. In addition, since financial products including trusts and WMPs are de jure
off-balance-sheet activities for the banks, in many cases their risks are neither adequately
monitored nor properly prepared for through methods such as provisioning. By providing
implicit guarantees, banks and other financial institutions subject themselves to extra risk
exposure, which would erode their capital bases if they have to bear the losses.
10 March 2014
16
Orderly trust default is possible, and would be positive for banking sector in
the long run
As we argued in the case of China Credit Trust/ICBCs Chengzhijinkai #1, we believe letting
the product default would be good for the development of Chinas financial system in the
long-run (see China Banks: First financial product default? A short-term pain, but long-term
gain, 17 Jan 2014). While we do sympathize with the governments cautious stance in
dealing with the situations, breaking implicit guarantees appears to us to be a necessary
task, and is becoming more pressing over time.
In the short term, breaking the implicit guarantee by letting some trusts default is likely to
have a negative impact on market sentiment. However, we believe that such reform would
remove an element of overhang on China bank stocks and be good for them in the long run.
In our view, a default would not necessarily lead to systemic risks, and an orderly trust
default would be possible due to reasons, including:
Investors of trust products are mostly high-net-worth individuals that have higher
tolerance for economic loss, and the number of households affected is much smaller
compared to that of WMPs.
The case of Songhua River #77 and some other troubled trusts seems to indicate that a
default would have limited impact, as the matured tranches for these trusts have already
technically defaulted by missing due payments, and yet there has not been any financial
system turmoil so far.
Risks of trusts may be unevenly distributed across difference sectors and regions; hence,
through proper cultivation of public risk awareness, defaults could compel funds to exit
riskier sectors and flow into safer ones.
As in most cases, we believe the government will push the reform process at a gradual
pace. Letting investors bear some, but not all, loss of principal would be a good first step, in
our view. Meanwhile, we also believe that a precedent trust default would alter the risk
appetite in the market. As a result, interest rates on trust products would likely rise and
growth of trusts slow, at least in the short term.
Trust default more likely to take place when other regulations are ready
In our view, the government might be more comfortable with allowing trusts to default
when other regulations, including more comprehensive shadow banking rules and a
financial safety net, such as the deposit insurance system, are already in place. We expect
an accelerated pace of reform in 2014, likely after the National Peoples Congress
Conference in March.
Impact of trust sector on China banks and TSF

Direct impacts on banks might reduce sector net profits by 6-9% in 2014
China banks direct exposure to the trust sector consists of four main components, namely:
1) collective trust products distributed by banks; 2) bank-trust (BT) cooperative products
underlying WMPs; 3) reverse repos collateralized on trust beneficiary rights (TBRs); and 4)
investments in TBRs. On our estimates, as of the end of 1H13, total outstanding bank
exposure to the trust sector was approximately RMB5.98tn, accounting for 63% of total
trust assets and equivalent to 8.8% of total loans.
10 March 2014
17

FIGURE 14
China banks exposure and potential loss to the trust sector, as of the end of 1H13
RMB bn , as of 1H13
Outstanding amount
Total collective trusts
2,210
Bank-distributed third-party collective trusts

Other channels
Total single trusts
Bank-trust cooperative products
TBR in reverse repo
TBR in investments
Non-bank single trusts
Total bank exposure to trusts
Potential loss under a severe scenario
1,547
663
6,697
2,085
1,057
1,291
2,265
5,979
416
b
c
d
a+b+c+d
Note: Sector-wise TBR in reverse repos and investments is estimated based on disclosure by A- and H-share listed
banks.
Source: Company data, CBRC, CTA, Barclays Research estimates
We run a scenario analysis to examine the direct impacts the trust sector could have on
China banks. Under our severe scenario, we assume non-performing asset (NPA) ratios of
bank-distributed third-party collective trusts and TBR reverse repo and investments to be
20%, and the NPA ratio of bank-trust cooperative products to be 10%.
In addition, we assume banks need to bear all losses on TBR reverse repo and investment as
they are on-balance-sheet items. We also assume banks would need to bear all losses on
bank-trust cooperative products underlying WMPs, which are mostly sold to ordinary
citizens. However, we assume that banks would only have to share 50% of the losses on
third-party trusts they distribute to reflect our view that trusts sold to wealthy individuals
may be the first step to break implicit guarantee.
Thus, by applying a loss ratio of 50%, the potential loss of China banks trust exposure
could be RMB 416bn as of 1H13, under our severe scenario (Figure 14).
Furthermore, if the potential loss is to be spread over the next 2/3 years, we calculate that it
could reduce net profits of the China banks sector by 9.2%/6.2% in 2014 and 8.5%/5.6% in
2015, assuming the sector net profit growth to be 10%/9%/8% in 2014/15/16, a constant
net profit/PPOP ratio of 80%, and an effective tax rate of 25% (Figure 15).
FIGURE 15
Scenario analysis: impact of trust default and loss on China banks net profits
RMB, bn
Net profits
PPOP
2014E
2015E
2016E
1,560
1,700
1,836
2,600
2,834
3,060
Scenario 1: potential loss to be spread over 3 years

Adjusted net profits
1,464
1,604
1,740
Impacts on net profits
-6.2%
-5.6%
-5.2%
Scenario 2: potential loss to be spread over 2 years

Adjusted net profits
1,416
1,556
Impacts on net profits
-9.2%
-8.5%
Source: CBRC, CTA, company data, Barclays Research estimates
Indirect impacts: higher funding costs and slower TSF growth

In addition to banks direct losses due to trust failures, we believe defaults of trust products
would also have indirect impacts on the banking sector, through likely higher funding costs
for the real economy and slower TSF/trust asset growth.
10 March 2014
18

At least in the short term, trust defaults would change the current risk awareness in the
market, in our view, and trust products would have to offer higher interest rates to
compensate for perceived risks, even though the underlying fundamentals remain the same.
As a consequence, we expect risks in bank loans to rise as well, due to increasing funding
difficulties for some financially stressed borrowers.
Meanwhile, we also expect TSF growth to slow with moderation of the trust sectors
expansion. In 2013, trust loans accounted for 10.6% of the TSF, up from 2.7% in 2010.
Assuming 10% annual growth rate in 2014 and 5% of trust loans as percentage of the TSF,
we estimate that net new trust loans would be RMB949bn in 2014, down 48% y/y
compared to RMB 1.83tn in 2013.
FIGURE 16
Trust loans accounted for 10.6% of TSF in 2013
RMB bn
900
15%
750
13%
600
10%
450
8%
300
5%
150
3%
0%
-150
-3%
-300
-5%
Net new trust loans (LHS)
Trust loans as % of TSF (RHS)
Source: PBOC, Barclays Research
Further reading
Barclays related research reports
Below, we provide links to past research on related topics that might be of interest (please
click on title to view full report on Barclays Live).
Report 1: China Banks: China Credit Trust raises concerns over China's trust industry overall,
Jan 27, 2014
Report 2: China Banks: First financial product default? A short-term pain, but long-term gain,
Jan 17, 2014
10 March 2014
19
EQUITY RESEARCH: CHINA COAL

Coal prices to remain range-bound in the near term
ASIA EX-JAPAN METALS & MINING
Industry view: Neutral
Ephrem Ravi
+852 2903 4892
ephrem.ravi@barclays.com
A new normal range is being established for coal prices in China (and coal freight rates as
well). Our view has been that the trough of coal prices would be in the RMB500-530/t
range, with the peak at around RMB 600-630/t. Our rationale for this range is also that it
reflects the 85th to the 99th percentile of the Chinese domestic producers cost curve, in our
view, between which commodity prices usually oscillate in an oversupplied market.
For the next six months, China coastal freight rates, one of the best leading indicators for
coal prices and demand from the main coal users, have reversed from the 50% drop in late
December, which indicates coal prices are stabilizing at current levels.
Krishan Agarwal
+852 2903 4543
krishan.agarwal@barclays.com
Lower domestic coal supply as producers face reality
Coal mining capex has been moderating in China for a while, with the rate of growth
slowing in 2011 and then flat-lining in 2012, primarily driven by the expectation that
investment growth in the industry would further decline due to lower coal prices. When FAI
data for individual industries in China for 2013 was released by NDRC, it showed a decline in
coal FAI for the first time in the 15 years since data collection started. Although the
magnitude of the decline in 2013 was marginal (-0.4% y/y), it is a big change in the context
of a 32% y/y CAGR during 2004-2011. Annual coal mining FAI grew 6x during the 20042011 period while coal production doubled. However, in 2012 coal mining FAI grew 7% y/y
while coal production grew just 3.5% y/y, and the 2013 negative FAI growth led to negative
coal production growth in China.
Ada Dai
+852 2903 4052
ada.dai@barclays.com
Dixon Lau
+852 2903 4838
dixon.lau@barclays.com
FIGURE 17
China coal mining FAI growth was flat in 2013
FIGURE 18
Negative FAI growth led to decline in domestic coal supply
14.0%
70%
600,000
China coal FAI (mn RMB)
12.0%
60%
500,000
10.0%
50%
8.0%
40%
6.0%
400,000
300,000
4.0%
30%
200,000
20%
100,000
10%
2.0%
0.0%
-2.0%
Coal FAI
0%
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Coal FAI
Source: CEIC, Barclays Research
Coal production
-4.0%
-6.0%
-10%
-8.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: CEIC, Barclays Research
We believe that the decline in both indicators of medium-term coal supply is a symptom of
the lack of profitability and cash flows in the coal mining industry. Even with a y/y drop in
coal mining FAI in 2013, capacity in coal mining is increasing (especially at the low end of
the cost curve), but utilization rates are dropping due to the weak coal price and
supply/demand trying to find a balance.
Coal mining FAI in China could continue to undershoot coal production for some time, in
our view. This is natural and part of the process of normalization of the supply/demand
balance in the commodity, as demand for domestic coal began to normalize in 2013 due to
a number of factors, including: 1) the rebalancing of the economy from being driven by
10 March 2014
20

industrial investment to being consumer-driven, 2) a focus on cleaner energy to reduce
pollution, and 3) rising coal imports, all leading to lower coal prices in 2013. We believe less
investment in coal, and the likely subsequent lower supply, will support coal prices and coal
mining profitability in the long run.
Consolidation has been an ongoing theme in the industry for a decade although it remains
very fragmented still. Following consolidation activities that are referred to in the earlier
section of this report analysing Shanxi coal industry finances, we see it also as imperative
that producers invest in and upgrade facilities to produce coal at a competitive cost. We
believe this aspect has been lagging in pursuit of volumes in China in the past. Our visit to
Shanxi coal producers in 2012 highlighted that volumes rather than cost efficiencies were
the focus (see our 12 March 2012 report Coal: Postcard From Shanxi: Will Shanxi spoil the
coking coal party?)
Positive short-term indicators of coal demand

Chinese coal prices (and seaborne coal prices for that matter) are back to where they were
before the rally in August 2013. Chinese coal prices went from RMB510/t in August 2013 to
RMB635/t in early January 2014, and in less than two months have come back down to
RMB538/t (the Newcastle coal export price out of Australia has also made the full round
trip from US$75/t in August 2013 to US$87/t and is at US$77/t currently). As investors
ponder the direction of the coal price at its current lows, one of the best indicators of the
direction of short-term coal prices suggests prices have troughed for the time being.
Coastal seaborne coal freight rates have been good leading indicators of Chinese IPP coal
restocking/destocking cycles (and consequently coal spot prices). They heralded the
recovery of the coal price in August 2013, the biggest rally in two years, with prices peaking
out and a subsequent collapse in prices in late 2013.
FIGURE 19
Rebound in coal freight indicates growing demand from main coal users
80
China coastal seaborne freight rate (RMB/t)
70
60
50
40
30
20
Qinhuangdao-Guangzhou
10
Qinhuangdao-Shanghai
Huanghua-Shanghai
Jan-14
Feb-14
Dec-13
Oct-13
Nov-13
Sep-13
Jul-13
Aug-13
Jun-13
Apr-13
May-13
Mar-13
Jan-13
Feb-13
Dec-12
Oct-12
Nov-12
Sep-12
Jul-12
Aug-12
Jun-12
Apr-12
May-12
Mar-12
Jan-12
Feb-12
Source: Sxcoal, Barclays Research
The late-February 2014 coastal seaborne freight rate in China ticked up for the first time
since mid-December 2013 as the freight rate for the long Qinhuangdao-Guangzhou route
rate came down by c50% and the shorter Qinhuangdao-Shanghai route rate declined by
60%. Incidentally, absolute freight rates are back where they were before the rally began in
August 2013.
10 March 2014
21
Stock pick
China Shenhua (OW, PT HK$31)
Structural earnings upside with non-coal assets easing earnings volatility
China Shenhua offers pure-play exposure to thermal coal with more than 98% of its annual
average sales volume coming from thermal coal. Our investment case has three major
components, given the companys: 1) faster-than-industry growth in coal volumes; 2)
integrated logistics supply network driving higher profitability and supporting its volume
growth vs. peers; and 3) exposure to power generation, which lowers earnings volatility
driven by coal prices vs. peers.
Shenhua has strong balance sheet with a gearing just under 10% by end of 2013, on our
estimates. Our forecast for a net debt of RMB26.8 billion by end 2013 in the context of its
annualised free cash flow of over RMB30 billion in 2014E underscores the relative strength,
which will likely improve further as we estimate the annualised free cash flows to increase in
next three years by c50%.
The size of Shenhuas business has nearly doubled since 2008 (without adding on debt),
which reflects its earnings potential. We expect coal equivalent volumes to jump from
270mt in 2008 to 535mt in 2014E, and that the company will generate EBITDA of
RMB91.1bn in 2014E, even after considering the impact of current low coal prices,
compared with EBITDA of RMB49.5bn in 2008. In addition, the company announced three
non-coal mining investments in 2013 to further diversify away from coal pricing risks,
namely the coal-to-olefin plant acquisition in Inner Mongolia, acquisition of the Jiujiang
power plant, and formation of a US JV to explore and produce shale gas in Pennsylvania.
Our preference for Shenhua is driven by a number of company-specific drivers and is not
based solely on higher coal prices. The higher railway tariff already announced by the
Chinese government in January 2014 could increase our base case earnings estimate by
12% and coincides with higher railway volumes in 2014. While Shenhua is continuing to
maintain higher ROE than its Chinese coal peers (2014E ROE at 17% vs Chinese coal
producers average ROE of 10%) with a dividend yield of 5.5%, we believe the current P/B
of 1.1x 2014E does not fully reflect its strong return profile.
10 March 2014
22
EQUITY RESEARCH: CHINA PROPERTY

Short-term pain inevitable but risk is manageable
ASIA EX-JAPAN REAL ESTATE
Industry view: NEGATIVE
Alvin Wong
+852 2903 4535
alvin.wong@barclays.com
Jianping Chen
+852 2903 4451
jianping.chen@barclays.com
As concerns over trust defaults have risen, we expect a decreasing appetite for risk to
further tighten the incremental quota of trust financing and drive up refinancing costs for
Chinas developers. Should scrutiny over trusts continue, we expect to see some short-term
negative impacts: 1) aggressive property price cuts could come from financially stretched
developers, especially smaller/local players, as they seek to fulfil debt repayment
obligations; however, we dont expect to see this across the whole sector; and 2) refinancing
costs will likely rise for most developers as a result of a lower risk appetite and tightening
liquidity in the broad economy. Nevertheless, we do not expect this to become a systemic
risk for Chinas real estate sector. Instead, with the credit pressure likely offering more M&A
opportunities for developers that are cash-rich, we expect market consolidation will
accelerate, with the big developers becoming even bigger. Among the China stocks we
cover, we expect Evergrande (EW; PT HK$3.30) and Poly Property (UW; PT HK$3.80) could
be more vulnerable given their relatively higher exposure to trust financing (see Figure 23).
Real estate trusts were booming in 2013

According to data from China Trustee Association, the trust loan balance for the real estate
sector stood at Rmb1,034bn at the end of 2013. Excluding offshore financing and entrusted
loans, this accounted for 18% of developers total debt balance (we note that domestic
bond financing has not been available for developers, except for cases of affordable housing
construction). Driven by brisk home sales, the issuance of real estate trusts surged by 116%
y/y to Rmb685bn in 2013 and the issuance cost declined by 56bps to 9.55% (vs. 10.11% in
2012). Should investors risk appetite decline amid default concerns, we expect this
momentum will inevitably slow in 2014, and refinancing costs will rise.
FIGURE 21
Average lending cost for 14 developers under our coverage
8.4%
10.07%
4,500
9.7%
8%
9.2%
6%
8.94%
8.7%
4%
0
2012
8.2%
2%
9.07%
2013
Balance of real estate trust (RMBbn)

Balance of construction loan (RMBbn)
0%
Financing cost of newly-issued real estate trust

8.57%
1H13+
100bps
2011
2012
2010
2010
1,500
8.32%
6.4%
9.55%
3,000
7.6%
8.07%
1H13+
50bps
10%
1H13+
25bps
10.2%
10.11%
2011
6,000
1H13
FIGURE 20
Balance of real estate trust and financing cost
Source: Company data, Barclays Research
Aggressive price cuts expected but unlikely to be contagious

When facing credit pressure, developers are likely to turn first to cutting project selling
prices with the aim of accelerating cash collection. We expect this to happen among smaller
local developers, given their limited access to refinancing facilities. Aggressive price cuts by
these developers would likely exert some pricing pressure on adjacent projects but we
expect the impact should be relatively short-lived given the still healthy inventory levels
across the sector as a whole. Current inventory across 14 cities we track hovered around 11
10 March 2014
23

months in February, lower than the 17-20 months noted from November 2011 to March
2012. That said, while we think developers pricing will turn more conservative, spiralling
price cuts across the whole sector are unlikely in the near term, in our opinion.
Impact of higher financing cost will be primarily reflected in 2015

Another impact of the increasing scrutiny on trust loans is the rising cost of refinancing. We
expect this to impact developers bottom lines only in 2015 as the majority of gross interest
expense incurred in 2014 will likely be capitalized. Average financing cost for 14 developers
under our coverage was 8.07% in 1H13, on our calculation. Based on total debt level at endJune 2013, we estimate that hikes of 25bps, 50bps and 100bps in average borrowing costs
would translate into a net margin squeeze of 16bps, 32bps and 64bps in 2015E, and could
lower our 2015 net profit estimates by 1.1%, 2.3% and 4.5%, respectively. Please
see Liquidity expected to tighten; quality developers will likely less affected of 27 January
2014.
High exposure to trusts is not necessarily bad; sales execution also counts
While trust loans cost more (eg, 9.55% in 2013) than other financing facilities, such as
domestic construction loans (eg, 8.0% even at a 30% premium), higher exposure to trust
financing by developers is not necessarily bad for all developers, in our view. For some small
developers, we believe high net gearing is a trade-off for them to grow in scale at a faster
pace from a lower base. We believe sales execution capability also counts in an
unfavourable liquidity environment. Among the 14 stocks under our coverage, Evergrande
(EW; PT HK$3.30), Sunac (OW; PT HK$6.45) and Poly Property (UW; PT HK$3.80) have
higher exposure to trust financing. Nevertheless, given Sunacs proven track record of
strong execution sales execution and quality land reserves, we think Evergrande and Poly
will be the more vulnerable to rising trust default concerns.
FIGURE 23
Developers exposure to trust financing as of Jun-13
FIGURE 22
Proportion of short-term debt vs. total debt
60%
2011A
30%
1H13
25%
50%
20%
40%
15%
30%
10%
20%
5%
10%
Longfor
COGO
Greentown
COLI
KWG
CG
CRL
Shimao
Sino-Ocean
Agile
GZ R&F
Poly Prop.
Sunac
Poly Prop.
Evergrande
Greentown
Sunac
Sino-Ocean
Shimao
Agile
COGO
GZ R&F
CRL
KWG
Longfor
CG
COLI
0%
Evergrande
0%
Big developers to become bigger

Should the scrutiny of trusts continue to escalate, we do not rule out the possibility of small
developers running into financial difficulties given their heavier reliance on shadow banking
activities. Nevertheless, we believe the chance of such scrutiny amplifying into systemic risk
for Chinas real estate sector is small. Instead, with credit pressure likely offering more M&A
opportunities for the cash-rich developers, we expect market consolidation will accelerate
and the big developers to become even bigger. COLI (OW; PT HK$26.80), in this context,
would be one of the major beneficiaries, in our opinion, given its strong cash position,
proven track record on sales execution and profitability.
10 March 2014
24
CREDIT RESEARCH: CHINA PROPERTY

Sensitivity to domestic funding
Christina Chiow, CFA*
+65 6308 3214
christina.chiow@barclays.com
* This author is a member of the
Fixed Income, Currencies and
Commodities Research
department and is not an equity
research analyst
Smaller developers more sensitive to trust loans

Chinese developers have used trust loans from time to time to fund their business activities
for reasons of debt timing differences, flexibility and accessibility. Although trust loans are a
riskier alternative to long-term offshore bonds, offshore bank loans and onshore
construction loans, we think moderate and managed use of them is acceptable. For
developers with access to the USD bond market, trust loans are simply another funding
option. But for smaller developers that do not have access to offshore financial markets,
they are likely to be more exposed to changes in Chinas trust loan market.
Overall exposure among developers to trust funding is manageable

Many developers have improved their liquidity positions and diversified their funding
sources over the past few years. At the end of December 2012, we estimated that the
exposure of 34 select developers in the USD bond universe to trust/entrusted loans
averaged only 6.4% of their total debt (median basis) or 12.6% (average basis). For further
details, see Figure 9 Chinese real estate: Sensitivity to domestic funding, 16 July 2013. At a
sector level, we estimate this ratio remained around 10% of total debt (average) in 2013. In
general, we think these 34 developers increased their exposure to trust loans in 2013, given
competitive costs and accessibility, while their total debt also likely rose in 2013.
China Vanke in the high grade space and Glorious Property in the high yield space stand out
as big users of trust loans. As at the end of December 2013, we estimate the ratio of trust
loans to total debt was c.40% for Vanke and 40-50% for Glorious (including entrusted
loans). But given its market position, strong liquidity and robust sales, Vanke looks to be in a
much better position to withstand potential volatility in the trust loan market than Glorious
(Underweight 15s & 18s). Glorious liquidity also remains tight, with restricted cash of
CNY1.1bn, which is less than its short-term debt of CNY8.1bn at the end of June 2013.
No imminent systemic risk

We believe the likelihood of default among property-related trusts to be less than for other
industries, particularly those with significant overcapacity. Given the growth of Chinas
property market in the past few years and, hence, equity value, we think developers are
more likely to monetise property projects to repay outstanding debts, rather than be at risk
of defaulting on their loans. Nonetheless, we think a knock-on impact of (potential) defaults
in other sectors would likely see a reduction in investors risk appetite and stricter terms (ie,
higher risk premium) for developers wanting to access trust loans, which would likely result
in reduced availability. Should the trust loan market be shut down for a prolonged period,
some of the smaller developers may face consolidation pressure due to liquidity constraints.
10 March 2014
25
CREDIT STRATEGY
Ratings risks likely to increase
ASIA CREDIT STRATEGY
Krishna Hegde, CFA*
+65 6308 2979
krishna.hegde@barclays.com
When markets were concerned that ICBC would bail out China Credit Trusts Chengzhijinkai
No.1 product, S&P released a commentary stating that If, contrary to our current thinking,
ICBC does bail out the CTP [Collective Trust Program], we will have to review our
assumptions about Chinese banks credit exposures to shadow banking. A bailout by ICBC
may trigger an event-driven review of our Banking Industry Country Risk Assessment on
China and our stand-alone credit profile assessment of ICBC.
Lyris Koh*
+65 6308 3595
lyris.koh@barclays.com
* These authors are members of
the Fixed Income, Currencies and
department and are not equity
research analysts
Consequently, if Chinese banks begin to share losses on trust products where no legal
obligation exists, we think ratings pressure on Chinese banks could increase. In particular,
among the Chinese banks with USD bonds outstanding, we think S&Ps issuer credit ratings
on Agricultural Bank of China and Bank of Communications (BOCOM) could be
downgraded one notch, to A- and BBB+, respectively. We expect the issuer credit ratings of
Industrial and Commercial Bank of China (ICBC) and Bank of China (BCHINA) to remain
unchanged, but we think their standalone ratings could see one-notch downgrades to bbb-.
Overall, we think ratings downgrades could weigh on sentiment towards the Chinese banks,
even if losses related to the trust products are manageable relative to earnings. This could
eventually lead to spread widening in the Chinese banks senior bonds and their CDS. In
particular, we think the spread differential between the bonds of BOCOM and BCHINA/ICBC
could widen, given the ratings cliff effect of the Bank of Communications falling out of the
A-rating bucket.
At current levels, we continue to recommend a cautious stance on the bonds of the Chinese
banks. In our view, persistent negative news flow related to trust products, as well as
continued supply from the Chinese banks, will limit outperformance. We note that YTD,
supply from the Chinese banks (including SBLC-backed bonds) accounts for about 41% of
total supply from Asian banks.
Trade ideas
Sell BOCOM 23s; Buy ACIRC 22s (China Development Bank, CDB) at a spread
differential of 15bp. As discussed above, we believe trust bailouts by Chinese banks
could result in BOCOMs ratings being downgraded to BBB+ from A-. ACIRC bonds
(Aa3/AA-) are issued by Amber Circle Funding, a SPV, but benefit from a guarantee by
CDB. In our view, the spread differential of 15bp is very low, given the difference in the
strategic nature of the two entities, the difference in ratings and the risks of a
downgrade at BOCOM. We believe a more appropriate spread differential is about 3040bp.
Buy BCHINA 5y CDS and sell CDB 5y CDS at a cost of 10bp. The spread between
BCHINA and CDB has been steady at 10bp over an extended period of time (reflecting
the market view that CDB enjoys a greater degree of sovereign support as a policy
bank). As a deposit-taking bank with wide distribution, Bank of China is more exposed
to losses from trust products. If the precedent of Chinese banks sharing losses on
products that are not on balance sheet is established, we expect the spread differential
between CDB and BCHINA to widen. A further positive catalyst for CDB is likely to be
fiscal reforms that result in a more benign view of its exposure to local governments.
Overall, we view this trade as a low-risk trade with a negative carry of 10bp; however,
liquidity and bid-offer spreads could present a challenge for large positions.
10 March 2014
26
RATES STRATEGY
Higher rates volatility the new normal
RATES STRATEGY
Rohit Arora*
+65 6308 2092
rohit.arora3@barclays.com
* This author is a member of the
Fixed Income, Currencies and
department and is not an equity
research analyst
Allowing defaults on trust products could alter risk perceptions towards China, in our
view, thus putting upward pressure on interest rates. Moreover, if defaults are conducted
in a non-transparent manner, this could have implications for already-declining
interbank lending volumes, and lead to a wider dispersion in lending rates. Banks
increased demand for liquid assets in such an environment could lead to spikes in repo
rates and higher volatility, which we expect to be a more frequent market phenomenon
going forward. We think the PBoCs neutral stance on liquidity could provide a cushion,
but would be unlikely to restore confidence in the market.
Higher risk premia required. While the likelihood of trouble in Chinas trust sector has been
generally known since 2012, the significant amount of trust products maturing in 2014
our banks equity analysts estimate CNY4.5trn (up 77% y/y) makes the current situation
more sensitive, in our view, particularly if regulators become comfortable allowing trusts to
default. Moreover, with an estimated CNY1.1-1.3trn of riskier collective trusts maturing this
year, we believe banks could see losses on trusts in their WMPs. These factors the trusts
maturity schedule and embedded risks would require higher risk premia in fixed income
markets. If trust defaults are handled on a case-by-case basis, which we consider likely
given the potential magnitude of the sectors problems, we think this is likely to create
uncertainty and lead to a re-pricing of risk premia. In particular, as shown in Figure 24 and
Figure 25, interbank lending volumes tend to fall in times of market stress, and the
differentiation between banks increases.
FIGURE 24
Volatility: Down, but not out; dispersion likely to be routine
as shadow banking deleveraging continues
14
1d repo weekly volumes
Median O/N Shibor

Dispersion in quotes (RHS)
12
10
25%
1.2
10
1.0
0.8
0.6
0.4
0.2
Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13
20%
8
15%
6
12
10%
5%
2
0
Jan-12
7d repo rate (%, RHS)
30%
1.4
CNY trn
FIGURE 25
Money market squeezes likely to be regular events in 2014
0%
Jul-12
Jan-13
Jul-13
Jan-14
Source: China National Interbank Funding Center, Barclays Research
Source: Bloomberg, Barclays Research
We think the PBoCs shift to a neutral stance in February could have been pre-emptive to
dampen potential volatility given the likelihood of credit events in the near term. The
PBoC also sounded less hawkish in its Q4 13 monetary policy report, stating that it would
maintain appropriate levels of liquidity and create a stable monetary-financial environment.
Our economists believe the policy shift reflects changing economic conditions, as growth
has moderated and inflation has been softening on the back of higher interest rates and
slower money growth (see China PBoC Watch: Less hawkish, more flexible, 12 February
2014). Although interest rates moderated in early January amid reduced interbank market
stress and the PBoCs special liquidity operations ahead of Chinese New Year, release of the
10 March 2014
27

banks Q4 13 monetary policy report on 8 February triggered a sharp rally in fixed income
markets. Stop-losses being triggered on medium-term payers are likely to have exacerbated
the moves, in our view.
While we acknowledge the PBoCs change in stance from hawkish to neutral, we think the
central banks tolerance of a more than 200bp drop in money market rates may indicate
either: 1) concerns about the implications of volatile interbank markets on the broader
financial system and an already-slowing economy; or 2) a pre-emptive move to provide a
liquidity cushion ahead of potential defaults among trust products.
FIGURE 26
7d repo rate spikes have become quite frequent
FIGURE 27
..and more than seasonal events or driven by broad liquidity
shortages
%
Excess Reserves
180
3.60
7d repo spread over policy rate (RHS, bp)
160
3.40
140
3.20
120
3.00
100
2.80
80
2.60
60
2.40
200
7d repo rate 1m rolling vol
40
2.20
20
0
Feb-09
Feb-10
Feb-11
10 March 2014
Feb-12
Feb-13
Feb-14
2.00
Dec-10
Sep-11
Jun-12
Mar-13
-100
-50
0
50
100
150
200
250
300
350
400
450
Dec-13
28
ANALYST(S) CERTIFICATION(S):
In relation to our respective sections we, May Yan, Sean Hung, CFA, Ephrem Ravi, Alvin Wong, Rohit Arora, Christina Chiow, CFA, Krishna Hegde,
CFA and Lyris Koh, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the
subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to
the specific recommendations or views expressed in this research report.
FICC: IMPORTANT DISCLOSURES CONTINUED

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Explanation of the Barclays Research High Grade Sector Weighting System
Overweight: Expected six-month excess return of the sector exceeds the six-month expected excess return of the Barclays U.S. Credit Index, the
Pan-European Credit Index, or the EM Asia USD High Grade Credit Index, as applicable.
Market Weight: Expected six-month excess return of the sector is in line with the six-month expected excess return of the Barclays U.S. Credit
Index, the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index, as applicable.
Underweight: Expected six-month excess return of the sector is below the six-month expected excess return of the Barclays U.S. Credit Index,
the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index, as applicable.
Explanation of the Barclays Research High Grade Credit Rating System
The High Grade Credit rating system is based on the analyst's view of the expected excess returns over a six-month period of the issuer's indexeligible corporate debt securities relative to the Barclays U.S. Credit Index, the Pan-European Credit Index or the EM Asia USD High Grade Credit
Index, as applicable.
Overweight: The analyst expects the issuer's index-eligible corporate bonds to provide positive excess returns relative to the Barclays U.S. Credit
Index, the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index over the next six months.
Market Weight: The analyst expects the issuer's index-eligible corporate bonds to provide excess returns in line with the Barclays U.S. Credit
Index, the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index over the next six months.
Underweight: The analyst expects the issuer's index-eligible corporate bonds to provide negative excess returns relative to the Barclays U.S.
Credit Index, the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index over the next six months.
Rating Suspended (RS): The rating has been suspended temporarily due to market events that make coverage impracticable or to comply with
applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking division of Barclays is
acting in an advisory capacity in a merger or strategic transaction involving the company.
Coverage Suspended (CS): Coverage of this issuer has been temporarily suspended.
Not Rated (NR): An issuer which has not been assigned a formal rating.
For Australia issuers, the ratings are relative to the Barclays U.S. Credit Index or Pan-European Credit Index, as applicable.
Explanation of the Barclays Research High Yield Sector Weighting System
Overweight: Expected six-month total return of the sector exceeds the six-month expected total return of the Barclays U.S. High Yield 2% Issuer
Capped Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the EM Asia USD High Yield Corporate
Credit Index, as applicable.
Market Weight: Expected six-month total return of the sector is in line with the six-month expected total return of the Barclays U.S. High Yield
2% Issuer Capped Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the EM Asia USD High Yield
10 March 2014
29
FICC: IMPORTANT DISCLOSURES CONTINUED

Corporate Credit Index, as applicable.
Underweight: Expected six-month total return of the sector is below the six-month expected total return of the Barclays U.S. High Yield 2%
Issuer Capped Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the EM Asia USD High Yield
Corporate Credit Index, as applicable.
Explanation of the Barclays Research High Yield Credit Rating System
The High Yield Credit Research team employs a relative return based rating system that, depending on the company under analysis, may be
applied to either some or all of the company's debt securities, bank loans, or other instruments. Please review the latest report on a company to
ascertain the application of the rating system to that company.
Overweight: The analyst expects the six-month total return of the rated debt security or instrument to exceed the six-month expected total
return of the Barclays U.S. 2% Issuer Capped High Yield Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding
Financials, or the EM Asia USD High Yield Corporate Credit Index, as applicable.
Market Weight: The analyst expects the six-month total return of the rated debt security or instrument to be in line with the six-month expected
total return of the Barclays U.S. 2% Issuer Capped High Yield Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding
Underweight: The analyst expects the six-month total return of the rated debt security or instrument to be below the six-month expected total
return of the Barclays U.S. 2% Issuer Capped High Yield Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding
Rating Suspended (RS): The rating has been suspended temporarily due to market events that make coverage impracticable or to comply with
applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking division of Barclays is
acting in an advisory capacity in a merger or strategic transaction involving the company.
Coverage Suspended (CS): Coverage of this issuer has been temporarily suspended.
Not Rated (NR): An issuer which has not been assigned a formal rating.
EQUITY: IMPORTANT DISCLOSURES CONTINUED

Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each
individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a written
request to: Barclays Research Compliance, 745 Seventh Avenue, 14th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.com
or call 212-526-1072.
The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total
revenues, a portion of which is generated by investment banking activities.
Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA.
These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE
Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analysts account.
Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from accepting
payment or reimbursement by any covered company of their travel expenses for such visits.
In order to access Barclays Statement regarding Research Dissemination Policies and Procedures, please refer to
https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html. In order to access Barclays Research
Conflict Management Policy Statement, please refer to: http://group.barclays.com/corporates-and-institutions/research/research-policy.
The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamental
analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ
from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or
otherwise.
Materially Mentioned Stocks (Ticker, Date, Price)
Bank of China Limited (3988.HK, 07-Mar-2014, HKD 3.21), Overweight/Neutral, C/D/J/K/L/M/N
China Overseas Land & Investment (0688.HK, 07-Mar-2014, HKD 20.55), Overweight/Negative, C/J
China Shenhua Energy Co., Ltd. (1088.HK, 07-Mar-2014, HKD 20.55), Overweight/Neutral, D/J/K/L/M/N
Evergrande Real Estate Group (3333.HK, 07-Mar-2014, HKD 3.24), Equal Weight/Negative, J
Poly Property Group Co., Ltd. (0119.HK, 07-Mar-2014, HKD 3.55), Underweight/Negative, J
Sunac China Holdings Ltd. (1918.HK, 07-Mar-2014, HKD 3.99), Overweight/Negative, J
Disclosure Legend:
A: Barclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of the issuer in the
previous 12 months.
B: An employee of Barclays Bank PLC and/or an affiliate is a director of this issuer.
C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in equity securities issued by this issuer or one of its affiliates.
10 March 2014
30

D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from this issuer in the past 12 months.
E: Barclays Bank PLC and/or an affiliate expects to receive or intends to seek compensation for investment banking services from this issuer
within the next 3 months.
F: Barclays Bank PLC and/or an affiliate beneficially owned 1% or more of a class of equity securities of the issuer as of the end of the month prior
to the research report's issuance.
G: One of the analysts on the coverage team (or a member of his or her household) owns shares of the common stock of this issuer.
H: This issuer beneficially owns 5% or more of any class of common equity securities of Barclays Bank PLC.
I: Barclays Bank PLC and/or an affiliate has a significant financial interest in the securities of this issuer.
J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of this issuer.
K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from this issuer within the past 12 months.
L: This issuer is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.
M: This issuer is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC
and/or an affiliate.
N: This issuer is, or during the past 12 months has been, a non-investment banking client (non-securities related services) of Barclays Bank PLC
and/or an affiliate.
O: Barclays Capital Inc., through Barclays Market Makers, is a Designated Market Maker in this issuer's stock, which is listed on the New York
Stock Exchange. At any given time, its associated Designated Market Maker may have "long" or "short" inventory position in the stock; and its
associated Designated Market Maker may be on the opposite side of orders executed on the floor of the New York Stock Exchange in the stock.
P: A partner, director or officer of Barclays Capital Canada Inc. has, during the preceding 12 months, provided services to the subject company for
remuneration, other than normal course investment advisory or trade execution services.
Q: The Corporate and Investment Banking division of Barclays Bank PLC, is a Corporate Broker to this issuer.
R: Barclays Capital Canada Inc. and/or an affiliate has received compensation for investment banking services from this issuer in the past 12
months.
S: Barclays Capital Canada Inc. is a market-maker in an equity or equity related security issued by this issuer.
Guide to the Barclays Fundamental Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below)
relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverage
universe").
In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral or
Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors
should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.
Stock Rating
Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month
investment horizon.
Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12month investment horizon.
Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month
investment horizon.
Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to
comply with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Division
of Barclays is acting in an advisory capacity in a merger or strategic transaction involving the company.
Industry View
Positive - industry coverage universe fundamentals/valuations are improving.
Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.
Negative - industry coverage universe fundamentals/valuations are deteriorating.
Below is the list of companies that constitute the "industry coverage universe":
Asia ex-Japan Banks
Agricultural Bank of China Limited (1288.HK)
Axis Bank (AXBK.NS)
Bank Central Asia (BBCA.JK)
Bank Mandiri (BMRI.JK)
Bank Negara Indonesia (BBNI.JK)
Bank of Baroda (BOB.NS)
Bank of China (Hong Kong) Ltd. (2388.HK)
Bank of China Limited (3988.HK)
Bank of Communications Co., Ltd. (3328.HK)
Bank of East Asia Ltd. (0023.HK)
Bank of India (BOI.NS)
Bank Rakyat Indonesia (BBRI.JK)
10 March 2014
31

Bank Tabungan Negara (BBTN.JK)
BS Financial Group (138930.KS)
China CITIC Bank Corporation (0998.HK)
China Construction Bank Corp. (0939.HK)
China Merchants Bank Co., Ltd. (3968.HK) China Minsheng Banking Corp., Ltd. (1988.HK)
Chongqing Rural Commercial Bank (3618.HK)
CTBC Financial Holding (2891.TW)
Dah Sing Banking Group Ltd. (2356.HK)
Dah Sing Financial Holdings Ltd. (0440.HK)
DBS Group Holdings, Ltd. (DBSM.SI)
DGB Financial Group (139130.KS)
E.Sun Financial Holding (2884.TW)
Federal Bank (FED.NS)
First Financial Holding (2892.TW)
Hana Financial Group (086790.KS)
Hang Seng Bank Ltd. (0011.HK)
HDFC Bank (HDBK.NS)
HSBC Holdings PLC (0005.HK)
ICICI Bank (ICBK.NS)
Indusind Bank (INBK.NS)
Industrial & Commercial Bank of China Ltd.

(1398.HK)
Industrial Bank of Korea (024110.KS)
ING Vysya Bank (VYSA.NS)
KB Financial Group (105560.KS)
Kotak Mahindra Bank Ltd. (KTKM.NS)
Mega Financial Holding (2886.TW)
OCBC Group (OCBC.SI)
Punjab National Bank (PNBK.NS)
Shinhan Financial Group (055550.KS)
SinoPac Financial Holdings (2890.TW)
Standard Chartered PLC (2888.HK)
State Bank of India (SBI.NS)
UOB Group (UOBH.SI)
Wing Hang Bank Ltd. (0302.HK)
Woori Finance Holdings (053000.KS)
ACC Limited (ACC.NS)
Adaro Energy Tbk PT. (ADRO.JK)
Aluminum Corporation of China Ltd. (2600.HK)
Ambuja Cements (ABUJ.NS)
Angang Steel Co., Ltd. (0347.HK)
Anhui Conch Cement Co., Ltd. (0914.HK)
Banpu PCL (BANPU.BK)
BHP Billiton Ltd. (BHP.AX)
Bumi Resources Tbk PT. (BUMI.JK)
China Coal Energy Co., Ltd. (1898.HK)
China Hongqiao Group Ltd. (1378.HK)
China National Building Material Co., Ltd.

(3323.HK)
Yes Bank (YESB.NS)

Asia ex-Japan Metals & Mining
China Resources Cement Holdings Ltd. (1313.HK) China Shanshui Cement Group Ltd.
(0691.HK)
China Shenhua Energy Co., Ltd. (1088.HK)
China Steel Corp. (2002.TW)
Coal India (COAL.NS)
CST Mining Group Ltd. (0985.HK)
Fortescue Metals Group Ltd. (FMG.AX)
Harum Energy Tbk PT. (HRUM.JK)
Hindalco Industries Ltd. (HALC.NS)
Hindustan Zinc Ltd. (HZNC.NS)
Hyundai Steel Co. (004020.KS)
Indo Tambangraya Megah Tbk PT. (ITMG.JK)
IRC Ltd. (1029.HK)
Jiangxi Copper Co., Ltd. (0358.HK)
Jindal Steel & Power (JNSP.NS)
JSW Steel (JSTL.NS)
Korea Zinc Co., Ltd. (010130.KS)
Maanshan Iron & Steel Co., Ltd. (0323.HK)
MMG Limited. (1208.HK)
National Aluminium Co., Ltd. (NALU.NS)
NMDC Ltd. (NMDC.NS)
POSCO (005490.KS)
Sesa Sterlite Ltd (SESA.NS)
Shree Cement (SHCM.NS)
Steel Authority of India (SAIL.NS)
Tata Steel (TISC.NS)
TB Bukit Asam Tbk PT. (PTBA.JK)
UC Rusal (0486.HK)
Yanzhou Coal Mining Co., Ltd. (1171.HK)
Asia ex-Japan Real Estate

Agile Property Holdings (3383.HK)
Ananda Development PCL (ANAN.BK)
Ascendas REIT (AEMN.SI)
CapitaCommercial Trust (CACT.SI)
CapitaLand (CATL.SI)
CapitaMall Trust (CMLT.SI)
CapitaMalls Asia (CMAL.SI)
Champion REIT (2778.HK)
Cheung Kong (Holdings) Ltd. (0001.HK)
China Overseas Grand Oceans Group (0081.HK)
China Overseas Land & Investment

(0688.HK)
China Resources Land (1109.HK)
Chong Hong Construction Co. (5534.TW)
City Developments (CTDM.SI)
Country Garden Holdings (2007.HK)
DLF Ltd. (DLF.NS)
Evergrande Real Estate Group (3333.HK)
Far Eastern New Century Corp. (1402.TW)
Farglory Land Development Co., Ltd. (5522.TW)
Godrej Properties Ltd. (GODR.NS)
Greentown China Holdings Ltd. (3900.HK)
Guangzhou R&F Properties Co., Ltd. (2777.HK)
Hang Lung Properties Ltd. (0101.HK)
Henderson Land Development Co., Ltd.

(0012.HK)
Hongkong Land Holdings Ltd. (HKLD.SI)
Huaku Development Co., Ltd. (2548.TW)
Hung Poo Real Estate Development Corp.

(2536.TW)
Hysan Development Co., Ltd. (0014.HK)
Keppel Land (KLAN.SI)
Keppel REIT (KASA.SI)
Kerry Properties Ltd. (0683.HK)
Kindom Construction (2520.TW)
KWG Property Holding (1813.HK)
Link REIT (0823.HK)
Longfor Properties (0960.HK)
Mapletree Industrial Trust (MAPI.SI)
Mapletree Logistics Trust (MAPL.SI)
Midland Holdings Ltd. (1200.HK)
New World Development Co., Ltd. (0017.HK)
Oberoi Realty Ltd. (OEBO.NS)
Poly Property Group Co., Ltd. (0119.HK)
Prestige Estates Projects Ltd. (PREG.NS)
Prince Housing & Development Corp. (2511.TW)
Shimao Property Holdings Ltd. (0813.HK)
Sino Land Co., Ltd. (0083.HK)
10 March 2014
32

Sino-Ocean Land Holdings Ltd. (3377.HK)
Sobha Developers Ltd. (SOBH.NS)
Sun Hung Kai Properties Ltd. (0016.HK)
Sunac China Holdings Ltd. (1918.HK)
Suntec REIT (SUNT.SI)
Swire Properties Ltd. (1972.HK)
Taiwan Fertilizer Co., Ltd. (1722.TW)
Wharf (Holdings) Ltd. (0004.HK)
Distribution of Ratings:
Barclays Equity Research has 2597 companies under coverage.
44% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 46% of
companies with this rating are investment banking clients of the Firm.
38% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 43% of
15% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 40% of
Guide to the Barclays Research Price Target:
Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will
trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price
target over the same 12-month period.
Barclays offices involved in the production of equity research:
London
Barclays Bank PLC (Barclays, London)
New York
Barclays Capital Inc. (BCI, New York)
Tokyo
Barclays Securities Japan Limited (BSJL, Tokyo)
So Paulo
Banco Barclays S.A. (BBSA, So Paulo)
Hong Kong
Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)
Toronto
Barclays Capital Canada Inc. (BCCI, Toronto)
Johannesburg
Absa Bank Limited (Absa, Johannesburg)
Mexico City
Barclays Bank Mexico, S.A. (BBMX, Mexico City)
Taiwan
Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)
Seoul
Barclays Capital Securities Limited (BCSL, Seoul)
Mumbai
Barclays Securities (India) Private Limited (BSIPL, Mumbai)
Singapore
Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)
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33

DISCLAIMER:
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10 March 2014
34

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10 March 2014
35
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Barclays Asia Themes Financing China - in Orderly Default We Trust

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Cross Asset Research

Financing China In (orderly) default

Recent cases of near-default among bank-distributed trust products have raised

Barclays Bank, Hong Kong

*These authors are members of the Fixed Income,

Barclays | Asia Themes

Key topics Q&A

Q. Why might 2014 be special?

Q. How did recently reported trusts get into trouble?

Barclays | Asia Themes

Q. Is the coal sector a systemic risk?

Q. What might happen next?

Barclays | Asia Themes

Stock implications for China banks

Barclays | Asia Themes

EQUITY RESEARCH: CHINA BANKS .............................................................. 6

EQUITY RESEARCH: CHINA COAL...............................................................20

EQUITY RESEARCH: CHINA PROPERTY .....................................................23

CREDIT RESEARCH: CHINA PROPERTY .....................................................25

RATES STRATEGY ...........................................................................................27

Barclays | Asia Themes

EQUITY RESEARCH: CHINA BANKS

Trust product defaults are not something new

Industry view: NEUTRAL

Qingdao Capland Real estate

CPFCO Trust Collective

Zhongjinjiacheng Real estate Interest

10-11.8% Anxin Trust

The trust was terminated before maturity and

Anxin Trust elicited a third-party property

Barclays | Asia Themes

Undergoing lawsuit since Nov 2013 when the

Recent cases reveal potential risks for China banks

Barclays | Asia Themes

2014 faces increasing pressure of maturing trust products

Barclays | Asia Themes

RMB1.1-1.3tn in interest/principal payments of collective trusts due in 2014

Shortening average maturity indicates greater liquidity challenge of

Actual quaterly maturing trusts

Estimated maturing trusts (issuances preceding 24m)

Property management trust

Source: China Trustee Association, Barclays Research

Barclays | Asia Themes

Recent coal trust concerns trace back to industry reform

Leverage (Trust AUM/Equity)

Quaterly new collective trusts (LHS)

Source: China Trustee Association, Barclays Research

Source: China Trustee Association, Use-Trust, Barclays Research

Barclays | Asia Themes

Maturity mismatch in debt structure of coal companies

High funding costs exacerbated liquidity conditions

Source: Use-Trust, Barclays Research

q/q growth rate

Average maturity of mining trusts issued

Barclays | Asia Themes

Complication of coal mine ownership and mining rights

Decline in coal price caused industry-wise deterioration in profitability

Source: Wind, Barclays Research

Coal sector does not pose systemic risk

Barclays | Asia Themes

Barclays | Asia Themes

Coal sector SOEs' average IBD/total liabilities ratio

A-share coal companies' average IBD/total liabilities ratio