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With China's restrictions on directly granting loans to real estate companies and the restrictions on establishing cash trusts, the trust companies had been seeking alternatives to engage in real estate investment. They actually might help the real estate developers to establish a trust to securitize the real estate project they own; however, for the reasons analyzed below, most of them decided to get financing only through using the “proceeds accruing from” their real estate project. These trusts are given a fancy name “XXX资产收益财产权信托”, and literally translated as “Trusts on the Right to Proceeds to be Accrued from XXX Project Assets.” They may also be called “Right to Proceeds Trusts” or simply “Right Trusts” in the paper. From its name, such a trust is apparently not a cash trust, and the trust property seems to be the right to proceeds only, instead of the underlying project assets. Doesn’t it sound like a mirage? And, is it true that the right to proceeds is the trust property in such trusts?

With these questions unanswered, such real estate trusts have become very popular in China since 2009 and there had been no disputes until 2013 when A Company sued B Company based on such a device in an intermediate court of Shanghai. Statistics show that the beneficial interests in such trusts in China had reached RMB 800 billion Yuan by the end of 2012, and among them, 310 billion had been due in the year of 2013. One of the reasons why real estate trusts are so popular in China is because of the high demand from the real estate industry and the high return to both the real estate industry and the trust companies.

However, the real estate bubble is very easy to burst. When it does, who owns the money, who owns the unfinished building, who owns the mirage (the right to proceeds), and who suffers the loss? With disputes arising, these first-impression questions are presented before the Chinese courts. This paper will examine the first Chinese case seeking to answer the above questions and try to identify the most legal obstacles against the development of commercial trusts and securitization in China.