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| President of
the People's Bank of China Dai Xianglong announced recently, "Until
the end of June 2000, four Chinese monetary asset management companies
had accepted bad loans of more than 130 billion yuan from four state-owned
commercial banks. 71% of the capital has been liquidated. When the
stripping work completes, these four banks' bad loan percentage can
definitely be controlled under 20%." |
| China begins to dispose
of bad assets |
 With
almost completion of the acceptance of bad assets from state-owned
commercial banks by four Chinese asset management companies, the disposal
of bad assets with Chinese characteristics has began unnoticeably.
It can be predicted that the four big asset management companies'
dealings with bad assets with a total value of more than 1000 billion
yuan will have a far-reaching impact on China's financial markets
for the next couple of years.
China formed four asset management companies, to purchase, manage
and handle part of the bad assets stripped from the four state-owned
commercial banks, so as to dispel banking financial risks and support
state-owned industries' reforms.
During the operating period of the asset management companies, the
purchase of bad assets is a relatively easy job. The asset management
companies, within the regulations of the government, purchase bad
assets from the banks according to their book values, ie, a division
between "good banks" and "bad banks" is established. When the purchase
is finished, handling the bad assets promptly and properly is the
toughest issue faced by Chinese asset management companies.
1. Pushing state-owned economies' strategic reformation and capital
market development
The majority of the bad assets purchased by the asset management companies
from the state-owned commercial banks are owned by state-owned industries.
Therefore, the asset management companies have become special stockholders
or creditors of state-owned industries. Industries whose stocks are
held periodically by the asset management companies relate to many
sectors of the national economy. The asset management companies, through
the establishment of regulatory management systems for modern corporations
and the involvement of strategic investors in key industries, push
the industries for healthy development. The burden-relieved banks
also have the ability to give credit support to these industries,
thus forming a circle and upgrading state-owned economies' capabilities
and controls in key industries. For the non-key competitive industries'
stock ownership, state-owned economies can withdraw strategically
through transfer to private and foreign assets. For the stock holding
companies, the asset management companies will rescue the state-owned
industries that have suffered from losses by all means, including
asset auction and debt reformation. This part of the state-owned assets,
after liquidation, can be used in the place where they are needed.
The period when the Chinese asset management companies are transacting
the bad assets coincides with the period when the Chinese capital
market is developing and improving. Dealing with bad assets by means
of the capital market is an effective method worthy of testing. Bad
assets, through separation, reformation and displacement, can get
their values added effectively in the process of continuous operation.
The viable ones can also be packaged for listing.
2. Making use of domestic and foreign resources
State-owned large and medium-sized industries, publicly-owned and
private companies are major forces involved in handling bad assets
in the country, and foreign invested banks, agents and multinational
companies with strong background and professional experience are major
partners.
For the moment, the Chinese national economy is picking up, admission
to the WTO is approaching, the competition for markets among domestic
and foreign industries is intensifying. Dealing with bad assets provides
domestic industries with golden opportunities. These industries can
expand at low cost through buying bad assets. In addition, there will
be another opportunity in the transaction of bad assets, ie, the implementation
of strategies in the West's development. The asset management companies'
branches in coastal and inland areas will reinforce cooperation, making
full use of the opportunities to handle bad assets, meaning that industries
in the coastal areas can go and invest in the inland areas.
 When
entering the WTO, after a five-year transition period, China will
practice national treatment for foreign companies and financial setups,
which will provide foreign investors with broad markets and investment
opportunities. Foreign-invested financial setups and multinational
companies are eager to enter the Chinese market, in expectation of
joint ventures or cooperation with locals, and this represents a good
opportunity for the transaction of bad assets. According to the news,
many foreign organs have established regular contact with the asset
management companies, demonstrating enormous enthusiasm for becoming
involved in asset transaction. According to the contact with foreign-invested
organs in the previous period, foreigners participate in asset transaction
in the following ways: one is that foreign agents provide consultation
services, helping asset management companies sort out their bad assets
and sell them to foreign investors directly, or helping asset management
companies reform companies' assets. The other is for foreign-invested
banks or multinational companies to buy the stock ownership or claim
the right directly from asset management companies. Then the asset
management companies can complete a successful withdrawal.
3. Asset management companies have a long way to go
The asset management companies' work in the previous period, whether
purchasing bad assets from banks or transferring debts to stocks according
to State regulations, is all influenced noticeably by policy, and
that means the asset management companies appear to be policy organs.
However, the next job, ie, the transaction of bad assets by adopting
measures for investment banks granted by the State, should be done
according to market principles. Otherwise, the withdrawal of assets
cannot be maximized. In this sense, the asset management companies
should be a business organ.
According to the related policy, those that the asset management companies
buy and transact are the banks' worst bad assets, and most of that
have the characteristics that credit loans are big, and effective
guarantees and collateral loans are small. In addition, the assets
bought by asset management companies vary. For example, among the
bad assets collected by China Great Wall Asset Management Company,
loans are many but the amount of each loan is small; among those collected
by the China Oriental Asset Management Company, foreign trade loans,
foreign currency loans and policy loans are in large quantities. These
assets are of fairly bad quality, and they face lots of difficulties
when transacted.
For the moment, the Chinese market environment also restricts the
transaction of bad assets, the Chinese financial market is not fully
developed, and this restrains asset management companies from making
as many choices as possible in sorting out and revitalizing assets.
In the meantime, market agent services are irregular and systems are
inflexible, which cannot provide asset management companies with the
necessary qualified services, so the market value of bad assets cannot
be estimated accurately. Under the circumstances that in the current
society the legal system is not so good, economic transparency is
very low, and the investment main force is weak, buyers of bad assets
probably lack confidence. |
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