In Depth: Why China’s Banks Are Hunting for Fortunes Stashed Abroad

A growing trend among wealthy Chinese business owners is to secure their assets in overseas accounts and real estate while their business empires in China collapse into insolvency, leaving domestic creditors facing steep losses. Traditionally, Chinese banks would write off bad debts when debtors absconded overseas due to limited means of tracking and recovering assets held abroad. However, this is changing as the magnitude of bad debt has increased, with more debtors fleeing and hiding assets offshore. Now, financial institutions are increasingly engaging in cross-border debt collection, often through external agencies that work on a contingency “no win, no fee” basis, as they attempt to recover lost capital internationally [para. 1][para. 2][para. 3].

China’s financial sector is under mounting strain, reflected in record levels of non-performing assets. In 2024 alone, financial institutions disposed of 3.8 trillion yuan (about $520 billion) in bad debt—a 27% increase from the previous year. The market for soured debt is thriving, with non-performing loan transactions on the official exchange platform rising by roughly 80% over the same period. The ongoing property sector slump has triggered this surge in bad loans, affecting industries linked to real estate. With declining asset values and lengthy debt recovery timelines, financial institutions find that domestic recovery is futile once key assets have been moved offshore, increasing the need for global asset recovery efforts [para. 4][para. 5][para. 6].

Notable cases such as HNA Group and China Evergrande Group highlight the low recovery rates for creditors. In HNA’s restructuring, ordinary creditors faced a projected recovery rate of only 4.45%, and for some subsidiaries, there was no recovery at all. Offshore creditors of China Evergrande were estimated by Deloitte to recover just 2% to 9.5% of their claims. The main challenges are the lack of recoverable domestic assets and fierce competition among creditors for whatever remains, further limiting returns. Debtors often exploit cross-border legal barriers to evade repayment, aided by networks for moving wealth out of China via underground banks, cryptocurrencies, and shell corporations. The “poor temple, rich monk” scenario—where business owners are personally wealthy while their companies collapse—remains common [para. 7][para. 8][para. 9][para. 10][para. 11][para. 12].

While creditors can pursue overseas assets in certain situations, recovery is hampered by legal complexities and high costs. Chinese judgments can be enforced in at least 47 jurisdictions, including many favored by high-net-worth individuals, and 35 of these have formal treaties with China supporting debt recovery. However, debt recovery procedures are often lengthy and expensive, requiring expertise in foreign legal systems and the tracing of sophisticated financial transfers. The process is complicated by difficulties in serving legal notices to overseas debtors, with some foreign courts—such as in Australia—refusing enforcement due to concerns over due process [para. 13][para. 14][para. 15][para. 16][para. 17][para. 18].

The cost of cross-border recovery is significant, with some cases costing upwards of $20 million. Agencies like Omni Bridgeway offer to shoulder these costs upfront on a contingency basis, taking a large share of any recovered assets (35%-55%) to reflect the risks involved. Chinese banks, accustomed to lower domestic fees, often balk at these rates. Nevertheless, litigation funding is argued to create otherwise unattainable value from written-off bad debts [para. 19][para. 20][para. 21][para. 22][para. 23][para. 24].