China Bargained Away Bad Loans to Its
Asset Management Companies.
In the first half of 2014, China’s ten major listed banks saw
a record high rate in non-performing loan ratios.
They are selling those loans at 20 to 30 percent of the
original prices, or even lower, to asset management firms.
As a result, China’s four asset management firms reported
that their half-year profit has grown by over 30 percent.
However, they have not paid back loans from the
Central Bank. So, where do their profits go?
Who will finally pay the bill for those bad loans?
Let’s look at the report below.
According to the latest statistics by PWC, China’s ten major
banks had an increase in both total balance and ratios of
non-performing loans in the first half of 2014.
The total balance of non-performing loans has almost
reached the figure from the whole of 2013.
The ratio of non-performing loans also exceeds 1 percent,
a record high in the past 4 years.
The Banking Regulatory Commission also announced that,
China’s financial industry had a total balance of 694.4 billion
Yuan ($113 B) in bad loans by the first half of 2014.
The figure increased by 102.3 billion Yuan ($16.7 B)
compared to the end of 2013.
The increment itself has exceeded that from the
whole of 2013.
China’s banks are making big moves to eliminate bad loans.
They packaged those loans and are selling them to asset
management firms at hugely reduced prices.
People’s Daily website reported that China Citic Bank’s
Shenzhen branch is selling an asset package at Shanghai
United Assets and Equity Exchange (SUAEE).
The package includes creditor rights of 476 bad loans,
which total 1.67 billion Yuan ($270 M) of unpaid capital.
The package is sold at only 20 million Yuan ($3.3 M),
almost one eightieth of its original value.
Huarong, Orient, Great Wall and Cinda are the four asset
management companies that take most bad loans in China.
Back in 1999, the Chinese Communist Party (CCP) decided to
eliminate 1.4 trillion Yuan ($228 B) of bad loans from its
big four state-owned banks, and so established these
four asset management firms.
As the only shareholder, the CCP’s Ministry of Finance
invested 10 billion Yuan ($1.63 B) into each company,
and offered warrants for them to obtain refinance of
604.1 billion Yuan ($98 B) from the Central Banks.
Then the four companies sold financial bonds of 811 billion
Yuan ($132 B) to the big four state-owned banks and the
China Development Bank. Bad assets were handed over to
those four companies with these two trades.
It is clear that the asset management firms did not spend
a single cent in“purchasing” the huge amount of bad loans.
In total they came to 1.4 trillion Yuan.
In addition, each company was given 10 billion Yuan
by the Ministry of Finance.
Gong Shengli,“dirty tricks of bargaining away state-owned
assets and the consequences are clearly big problems.
Neither the CCP’s Ministry of Finance nor the Central Bank
has good supervision systems.
The result can be horrifying if things continue.
From a long-term point of view, the state will lose a lot
while asset management firms will make huge profits.”
China’s Securities Daily said, listed banks were pressured
by bad loans totaling 558.1 billion Yuan.
However asset managers have made huge profits from that.
Open data shows all four asset management firms saw
more than 30 percent increase in profit.
The figures are: Great Wall 45 percent; Orient 39 percent;
Huarong 34.57 percent.
As the only listed company among the four, Cinda“purchased”
bad loans of 85.3 billion Yuan ($13.9 B) in the first half of 2014.
This was an increase of 100.2 percent from last year.
The rate of increase for traditional bad assets is 240 percent.
Cinda makes 30.3 percent more profit compared to
the same period of 2013.
Cinda and others are making huge profit by getting bargains.
However, Zhou Yanwu, a column writer of Hexun Finance,
commented that those four companies still owed about
1 trillion Yuan ($160 B) to the Central bank, and 820 billion
Yuan ($133.6 B) to the big four state-owned banks.
In addition, they have only retrieved 20 percent of
the 1.4-trillion-Yuan package in cash.
Zhou Yanwu said, trading bad loans, extending bonds,
suspending debts and other tricks are nothing more
than“moving state debts from one pocket to another”.
To clear debts, companies need profits and financial
departments need taxes.
The Central Bank has to print money. So in the end, who will
pay the bill for those bad loans in the banks?
Sources said, asset management companies are mostly
controlled by the CCP princelings.
In 2011, Boyu Capital which is run by Jiang Zemin’s
grandson, invested 50 million dollars in Cinda.
In early 2005, the CCP’s auditing administration revealed
that the four asset management firms were illegally using
or managing capitals totaling over 70 billion Yuan ($11.4 B).
Thirty-eight case clues were also found, which involved
a total of 6.7 billion Yuan ($1.1 B) in capital use.
Interview & edit/LiuHui Post-Production/Chen Jianming