“The Dominance of Regulatory Oversight in Chinese Investment Trusts“
Lusina Ho and Hui Jing
Asia-Pacific Trusts Law, Volume 3, Boundaries in Context, Part II, Chapter 10
Hart Publishing
Published online: May 2025
Abstract: A fundamental tenet in the relationship between regulations and private law is their functional dichotomy. Private law deals with the adjudication of bilateral rights and duties between individuals. Its main purpose is to protect the rights of individuals from infringement by others. In contrast, regulations primarily serve public interests, and are typically enforced by regulatory agencies through administrative sanctions or criminal liability. In this chapter, we argue that the Chinese legal regime for investment trusts departs from this paradigmatic dichotomy. Regulatory supervision not only addresses public interest concerns, but also frequently displaces private law in resolving disputes amongst trust parties, blurring the boundary between private law and regulations. We examine the unique circumstances in China that account for this regulatory dominance and argue that it can be justified only as a temporary measure.
Following this introduction, Part II discusses the main reason for regulatory dominance in China. We examine how the widespread use of investment trusts for shadow banking raises public interest concerns when private law rights are enforced in such trusts. In Part III, we explore the use and limitations of regulatory supervision to address both the public interest and private law concerns raised by trust (mal)practice. Part IV contends that whilst regulations can be an effective interim measure for addressing private law disputes, legislators should in the long term adopt a proactive approach and enact trust laws that clearly define the rights and responsibilities of the trust parties. Part V concludes.