China's Asset Management Corporations

25 Pages Posted: 13 Dec 2005

Date Written: August 2002

Abstract

To address the banking system's non-performing loan (NPL) problem, the Chinese government set up four asset management corporations (AMCs). They were to buy up bad debts of the big four state-owned commercial banks and dispose of them over 10 years, taking a large step towards NPL resolution. But in their first two years, these AMCs have made only a limited contribution to resolution of the NPL problem. They have taken over less than half of the NPLs at the big four banks. In addition, while AMC financing have been less than transparent, it appears to have burdened The People's Bank of China (PBoC) with greater risks to date than the Ministry of Finance (MoF), although there have not been to date any evident monetary consequences. Under plausible recovery scenarios, the AMC losses would surpass the current financial contributions to the AMCs from both the MoF and the PBoC. Since their cash recoveries have lagged their interest obligations, the AMCs face rising cash flow pressure. In response, the government is pushing for speedier asset recovery, as evident in the milestone of the first international NPL auction.

Keywords: banking, non-performing loans, asset management companies, China

JEL Classification: G21, O53

Suggested Citation

Fung, Ben S. C. and Ma, Guonan, China's Asset Management Corporations (August 2002). BIS Working Paper No. 115, Available at SSRN: https://ssrn.com/abstract=846288 or http://dx.doi.org/10.2139/ssrn.846288

Ben S. C. Fung (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ontario K1A 0G9
Canada

Guonan Ma

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

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