Category Archives: General Management

A Study about Public Asset Management Companies in East Asia

Background: The Chinese economy has been expanding fast over the past ten years, with its real GDP growth exceeding 8% and trade flows rising at 12% per annum. Nevertheless, China’s financial system is featured with a large but weak banking sector, with the total loans amounting to 150% of GDP andsaddled with high levels of non-performing loans (NPLs) estimated to be around 40% of the total loans outstanding (both carved-out and remaining). China has been moving towards more economic liberalisation since 1978 when it was a still command-based planned economy. As part of the general market-oriented economic reforms, the government has incrementally initiated a series of important banking reforms since 1996, in order to restructure and strengthen the country’s weak banking system(Lardy (1998) and BIS (1999)). China’s recent entry into the WTO further adds to the urgency of accelerated bank restructuring.

NPL stripping out has been generally regarded as “policy-based” transfers. Both the size and the scope of the carved-out problem loans were pre-authorised by the central government, with the explicit aim to bring down the levels of NPLs remaining at the big four banks towards some targeted levels. The lion share of the transferred bank assets were loans extended before the yearend of 1995 and identified as non-performing by the yearend of 1998 when the government first started promoting commercially-based bank lending. This is an indication that the government is willing to take responsibility for the potential financial loss related to the earlier state-directed policy lending but not those NPLs incurred afterwards (Ma and Fung (2002)). The sectoral distribution of NPLs acquired by the AMCs is fairly diverse, with 47% for the manufacturing sector, 6% for the farm sector, 16% for the commercial sector and only 7% for the real estate sector. Keep reading…

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