debt is hiding.
Trust loans represent the riskiest category of Chinese credit for which any significant data is available. Just beyond lies the murky world of informal lending.
"Right now trust financing is the financing method with the lowest barriers to entry in China. Of course, the cost will be higher," said Fan Jie, analyst at CN Benefit, a research firm that tracks China's trust and wealth-management industries.
The trust products that Reuters analyzed offer investors returns of 9-12 percent annually. That is even higher than the wealth management products that banks sell, which offer rates of 5-7 percent.
By the time the trust company takes its fee, typically worth 1-2 percent of the loan value, the local government or firm may pay up to 15 percent interest for a one- to two-year loan, more than double the bank rate of around 7 percent for similar loans.
The crippling interest rates make it even more difficult for borrowers to reduce their debt, laying the groundwork for future rollovers.
Only 4 percent of trust loans by value are explicitly intended for re-financing, Reuters found. But an additional 37 percent of trust loans specify the use of funds as "working capital", "liquid funding" or similarly vague terms that experts say sound like a rollover. For 8 percent of loans, disclosures offer no significant detail on the use of funds.
Local governments have ways to disguise the fact they are using new loans to repay old ones, said a Beijing-based trust company executive, who asked for anonymity. "When you're doing due diligence, you can figure it out, but no one will say it explicitly."
Tianjin, China's fifth-largest city, offers a glimpse into the plight of thousands of loss-making local governments and industrial firms that have turned to trust companies and other institutions that make up China's shadow banking system.
Reuters' analysis of the trust data, along with Tianjin's own disclosures about the financial condition of the city's largest financing vehicle, show how the city relied on high-interest funding to repay old debts.
About a half hour by high-speed train southeast of Beijing on the east coast, Tianjin was a lively trade centre