Three Major AMC Equity Transfers Underway as CIC Initiates Due Diligence (AI Translation)

三大AMC股权划转进行时 中投入场尽调

The Ministry of Finance is continuing its process of transferring its holdings in China Cinda, China Great Wall, and Orient Asset, the three major Asset Management Companies (AMCs), to China Investment Corporation, despite some delays [para. 1]. Established in the late 1990s to handle trillions of yuan in non-performing assets from large state-owned banks, these AMCs have grown significantly, holding various financial licenses over time. These AMCs began refocusing on core businesses following the 2018 Lai Xiaomin case involving China Huarong [para. 1].

Recent due diligence led by Central Huijin, a subsidiary of CIC, included inspections of Great Wall Asset and further evaluations at Orient Asset Management and China Cinda in September 2024 [para. 1][para. 4]. The future management framework will have the Ministry of Finance maintaining some regulatory functions, while CBIRC handles AMC-related business regulations [para. 3]. Meanwhile, CIC will manage personnel and serve as the holding platform [para. 3].

Several challenges confront AMCs, including macroeconomic pressures and a downturn in the real estate sector, which have affected overall performance [para. 3][para. 6]. The real estate market, pivotal for AMCs, is undergoing valuation challenges due to volatile prices [para. 6][para. 15]. However, new shareholders could potentially inject capital to support AMC developments [para. 15].

Industry insiders explain that the overarching reform strategy aims to guide AMCs back to their original responsibilities of managing and disposing of non-performing financial assets [para. 4]. Additionally, they can aid in resolving risks facing small and medium-sized financial institutions and contribute to state-owned enterprise reforms by managing inefficient assets through mergers and acquisitions [para. 4]. Over the years, real estate has been a key collateral form for AMCs, with over a dozen ways to manage such projects [para. 15].

The transfer of the Ministry of Finance's equity to CIC is part of larger financial system reforms initiated by the 2023 "Plan for Deepening Reform of the Party and State Institutions" [para. 20]. This plan seeks to clarify responsibilities among financial regulatory bodies and streamline the management and operations of state-owned financial capital [para. 20]. As of now, the Ministry of Finance holds substantial stakes in the three major AMCs: 58% in China Cinda, 73.5% in China Great Wall, and 71.55% in China Orient [para. 26].

Different AMCs have exhibited varied financial performances. For 2023, China Great Wall disclosed significant cumulative losses, despite slight improvements [para. 34]. Conversely, China Cinda reported a decrease in profits, while Orient Asset Management also saw a decline [para. 49][para. 50]. Huarong, renamed CITIC Financial Asset Management, reported profits in 2023 following substantial losses in previous years [para. 50].

Great Wall's performance has been comparatively weak. With reduced non-performing asset acquisitions and a conservative risk approach, business morale has suffered [para. 50][para. 52]. Previous acquisition interest by Everbright Group was shelved following internal investigations [para. 58].

The role of AMCs remains crucial in tackling risks in key sectors such as real estate and local debt [para. 60]. The disposal landscape for non-performing assets has evolved, now demanding more complex operations like restructuring and reorganization [para. 65][para. 67]. The shift from simple asset disposal to intricate risk management underscores the AMCs' enhanced professional capabilities [para. 67][para. 71].

Despite challenges, AMCs, with over two decades of experience, maintain an edge over other financial institutions in risk mitigation and resource integration [para. 71]. The focus should now be on leveraging these capabilities effectively [para. 71].