Caixin
Mar 25, 2020 08:56 PM

Exclusive: China to Reform National Bad Debt Managers

Zhou Liang, a vice chairman of the China Banking and Insurance Regulatory Commission, speaks at a press conference Sunday. Photo: CBIRC
Zhou Liang, a vice chairman of the China Banking and Insurance Regulatory Commission, speaks at a press conference Sunday. Photo: CBIRC

China is considering setting up a holding company to oversee its state-owned national asset management companies (AMCs), in the latest signal of strengthening control over the bad debt mangers, Caixin has learned.

The Chinese Banking and Insurance Regulatory Commission is developing a reform plan for the national AMCs, Zhou Liang, a deputy head of the commission, said at a briefing (link in Chinese) on Sunday.

The measures may be part of regulators’ efforts to improve oversight of the AMCs and defuse their risks after a major corruption scandal was uncovered at China Huarong Asset Management Co. Ltd., one of the country’s four national AMCs.

A source close to a national AMC speaking on condition of anonymity told Caixin that the reform plan will probably involve setting up a holding company to control the four national AMCs, with the head of the new holding company given an administrative rank equivalent to a deputy minister. The aim is to improve management of state-owned financial assets and isolate AMC risks from the Ministry of Finance, according to the source.

The finance ministry is the largest shareholder of the national AMCs, opening the ministry to risk of scandals at those companies jeopardizing its reputation.

The holding company plan was originally meant to move forward before or after the 2020 session of the National People’s Congress, the country’s top legislature, but has been postponed along with the session due to the coronavirus outbreak, the source said.

The current four national AMCs were set up in 1999 to buy and manage a total of 1.4 trillion yuan of nonperforming loans from the big four state-owned commercial banks at the time. The move came as an effort 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 poorly managed state-owned enterprises. No new national AMCs have been established since.

Earlier this month, the banking regulator gave the green light for a new national state-owned AMC, China Galaxy Asset Management Co. Ltd.

In recent years, the four AMCs have expanded their business scopes far beyond bad debt management into the banking, insurance and securities sectors, raising concerns of mounting risks.

In 2018, then-chairman of Huarong, Lai Xiaomin, fell into a graft probe. Lai was prosecuted last year for taking huge bribes. He was found to have channeled Huarong funds into privately owned companies with risky investments.

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The scandal prompted financial regulators to kick off a purge of the AMCs. They have been told to focus on their core business of bad debt management, and their management teams have been reshuffled. Three vice presidents from three national AMCs have recently been rotated into positions at other national AMCs, as it is thought that senior executives serving at the same company for long periods may breed corruption.

Timmy Shen contributed to this story.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Gavin Cross (gavincross@caixin.com)

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