China OKs First National Bad-Debt Manager in Two Decades
China has given the green light for a new national state-owned asset management company (AMC) to handle distressed debt, the first approval since four AMCs were set up in 1999 to deal with the bad loans of the so-called “Big Four” state-owned commercial banks. The move could be a sign the government is ready to step up efforts to tackle the estimated 5 trillion yuan ($714 billion) pile of nonperforming loans (NPLs) stuck on the balance sheets of the country’s financial institutions.
Beijing-based Jiantou Citic Asset Management Co. Ltd. will be turned into a financial asset management company and renamed as China Galaxy Asset Management Co. Ltd., according to a statement posted on the China Banking and Insurance Regulatory Commission (CBIRC) website on Monday and dated March 5. Jiantou Citic will need to complete the transformation work within six months and will not be allowed to undertake financial business activities during the transition, the regulator said.
Founded in 2005 with registered capital of 1.9 billion yuan, Jiantou Citic’s largest shareholder is Central Huijin Investment Ltd., an investment arm of China’s sovereign wealth fund, which owns 70% of the company, according to Caixin Data. Citic Securities Co. Ltd., the country’s biggest full-service investment bank and a unit of state-owned Citic Group, owns the remaining 30%.
The firm was established in 2005 to take over some of the assets of Huaxia Securities Co. Ltd. Huaxia, set up in 1992, was one of the country’s earliest and biggest brokerages, and collapsed in November 2008 after years of reckless expansion combined with illegal financial management that led to massive financial losses. It was taken over by CSC Financial Co. Ltd., an investment bank and securities firm set up specifically for the restructuring. CSC Financial was a joint venture set up by Citic Securities and China Jianyin Investment Co., a unit of Central Huijin. It is now jointly owned by China Jianyin and an asset management unit of the Beijing municipal government.
Deluge of debt
Speculation has grown that Jiantou Citic was looking to transform itself into a national AMC as the work of disposing of Huaxia Securities’ assets wound down. In a January 2019 recruitment advertisement, it said its “disposal task” was coming to an end and was looking to hire information technology professionals to promote the transformation and development of the company and build it into a professional financial asset management company with nationwide operations.
At the end of 2019, Li Mei, the legal representative of Jiantou Citic and the chairwoman of China Galaxy Financial Holdings Co. Ltd., a state-owned financial conglomerate that offers brokerage, investment management, banking and trust services, said in a New Year message (link in Chinese) to staff and customers that Jiantou Citic’s transformation into the fifth national AMC was progressing smoothly.
China currently has four national AMCs –– China Great Wall, China Orient, China Huarong and China Cinda. They were set up in 1999 to buy, manage and sell off a total of 1.4 trillion yuan of NPLs from the big four state-owned commercial banks. The aim was to remove the bad debts from the banks’ balance sheets as part of a strategy to clean up the banking system and make it more market-driven after decades of policy-driven lending to unprofitable state-owned enterprises. No new national AMCs have been established since then, although since 2014, regulators have approved more than 53 local AMCs, mostly state-owned, which have the right to buy NPLs directly from banks in their own provinces. In November, the Beijing municipal government set up its second local AMC in partnership with the fintech arm of e-commerce giant JD.com.
As of the end of June 2019, NPLs in China’s financial industry amounted to about 5 trillion yuan, including 2.24 trillion yuan in the banking industry, Huarong Securities Co. Ltd. said in a September research report (link in Chinese).
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