The Big Four AMCs: Changing Priorities – and Rankings – In a New Era

After years of diversifying into financial services, and then into the less regulated wilds of shadow banking, China’s big four asset management companies (AMCs)—Cinda, Huarong, China Orient, and Great Wall [1]—are now being forced by the government to reorient their priorities back toward nonperforming loans (NPLs). The AMCs have built up significant financial resources over the years, but a diminishing share has gone towards distressed debt. Instead, the largest firms have moved into the sort of financing arrangements that Beijing has been cracking down on elsewhere in the economy. With China at only the early stages of a multi-year campaign to deal with bad loans, authorities now feel that those resources can be better deployed.

Still, it’s not a new message from Beijing, and some AMCs clearly detected a shift in the wind earlier than others. Consequently, while most of the AMCs have focused on more profitable businesses, the smallest of the four AMCs—a firm widely regarded as the laggard of the group—appears to have emerged as the most active acquirer of banks’ bad loans, upending the established order.

It has traditionally been difficult to gather sufficient data on all four AMCs to be able to compare them. Huarong and Cinda disclose regular earnings to the Hong Kong stock exchange, where they’re both listed. But until recently, neither China Orient nor Great Wall had published full-year earnings reports since 2012 and 2013, respectively. However, both firms have been disclosing more information—either to the media or in formal disclosures— as they’ve moved to raise capital from public debt markets, and as they prepare to launch initial public offerings.[2]

Those disclosures illustrate a significant divergence between the AMCs. Cinda and Huarong have long been regarded as the best managed and most innovative of the group, and have been rewarded accordingly by being allowed to trade their shares publicly. But Great Wall—whose assets were equivalent to only about 50% of those of Huarong at the end of 2017—appears to have been acquiring more bad loans from financial institutions than any of the other three. According to numbers disclosed by Great Wall President Zhou Liyao, in the first six months of 2018, the AMC acquired 76.1 billion yuan worth of NPLs directly from financial institutions.[3] Over the same period, Cinda acquired 45.5 billion yuan worth, up 62% from a year earlier.

Huarong usually provides a figure for newly acquired bad loans in its interim earnings report, but 2018 has proven to be an exception. However, based on its holdings of distressed assets at the end of June, it seems unlikely that the company acquired significantly more than the 48.9 billion yuan worth of NPLs it bought from financial institutions in the first half of 2017. Changes in distressed assets are not fair proxy for newly acquired NPLs. However, a significant increase in NPL purchases should be reflect in an increase in distressed debt assets. At the end of June, total assets for every class of distressed debt disclosed by Huarong was largely unchanged from six months earlier, suggesting the company likely didn’t increase its NPL purchases in the first half of 2018 on the scale necessary to exceed Great Wall.

It’s important to note that Great Wall’s prominence hasn’t emerged from out of the blue. While we don’t have data to provide a breakdown for 2017, in 2016 Great Wall’s NPL purchases similarly exceeded those of the biggest two AMCs. In that year, Great Wall acquired 196.5 billion yuan worth of bad loans from financial institutions,[4] compared with 117.4 billion yuan by Huarong, and 90.6 billion yuan by Cinda.

Returning to the Core

The four AMCs were set up in 1999, each tasked with acquiring NPLs from one of China’s big four commercial banks. Great Wall was paired with Agricultural Bank of China (ABC), which was generally regarded as having the worst quality NPLs. Moreover, all four AMCs were initially staffed with employees from the Big Four banks from which they acquired their first round of bad loans. ABC had a reputation for being the worst run of the banks, a reputation that carried over to Great Wall.[5]

The AMCs were initially capitalized with 10-year bonds. It was generally anticipated that the bad banks would complete the task of cleaning up the financial system within that period, at which point they would be wound down. Instead, after 10 years the bonds were rolled over, giving the AMCs a new lease on life. And while they were still dealing with some of the NPLs they had acquired, the financial system had returned to health. Since there was no longer a need for them to continue acquiring large volumes of bad loans, the AMCs were allowed to diversify.

Today, each of the four AMCs typically has a large, if not majority stake in a bank, insurer, trust, securities brokerage, and leasing firm. Some even have stakes in a futures company or consumer loan firm, and they’re all heavily invested in real estate. But the relative importance of these activities varies between AMCs (see Figure 1). Moreover, Huarong and Cinda have further expanded their businesses. Huarong in particular has provided funding to some of China’s biggest—and most over-extended—companies, including HNA Group, Dandong Port Group, and China Huishan Diary Holdings.[6] Most notably, in February Huarong disclosed that it was buying a 36% stake in a Chinese firm that was paying $9.1 billion for a share of Russia’s Rosneft.[7]

Figure 1. A Small Part of a Big Business
Size of each AMC’s financial subsidiaries by asset size, compared with distressed debt assets, at end-2017
Notes: Bad debt assets represent assets held at year end, not total volume of bad loans acquired throughout the year.
Size of assets reflects whether financial subsidiaries are consolidated on AMC’s balance sheet. Hence, total assets of subsidiaries in which AMCs own more than 50% are represented in the chart. But for subsidiaries in which an AMC holds less that 50%, the chart only shows the percentage of assets over which the AMC can claim ownership.

Source: Companies’ earnings and credit rating reports.

However, in recent years there have been signs that the listed AMCs in particular have perhaps gone further than what the regulators were comfortable with. When in 2016 Beijing approved China Orient to be converted into a joint stock company—a preliminary step toward eventually launching an IPO—Yang Jiacai, assistant chairman of the China Banking and Regulatory Commission (CBRC) at the time, said that the firm was “changing structure, not changing direction.” This meant that the core focus of China Orient would remain dealing with NPLs.[8]

However, it wasn’t until 2018 that regulators become more forceful in their messaging. In January 2018, the CBRC issued draft regulations which promised greater oversight of AMCs, and instructed them to focus more upon NPLs as their core business.[9] When Lai Xiaoming, the chairman of Huarong, was detained on April 17, 2018 for discipline violations—Chinese media have since reported that Lai was found with three tons of cash, or 270 million yuan, in his home—that message was really driven home.[10]

Soon after Lai’s detention, Huarong announced in a statement on its website that it would henceforth embrace a policy that it calls the “two returns,” whereby “in developing its business [Huarong] will return to its origins by focusing on its core business (i.e. NPLs) and raising its capacity to serve the real economy.” (The second “return” emphasizes that in future “all business operations are to be carried out in a sound and orderly manner.”[11]) Huarong has since explicitly promised to “increase its investment in bad assets.”[12]

Following Lai’s demise, other AMCs have been quick to stress the importance of their “core business” as well. On the day Lai was detained, Great Wall’s chairman Chen Xiaoming said his firm would “further establish bad assets at the core of our operations, [and] focus on problem assets, debts, and firms.”[13] Two days later, a China Orient executive told a press conference that new capital recently raised by the firm would allow it to “better return to our core business.” At the same media event, China Orient vice president and board secretary Chen Jianxiong said that China Orient would spend 100 billion yuan buying NPLs in 2018, though he didn’t say how that differed from 2017.[14]

China Reoriented

China Orient, the third largest of the big four AMCs, lags the most in terms of NPL purchases. In fact, in 2016 its purchases of NPLs were only marginally higher than those of the most active provincial AMCs, which had only been set up a couple of years prior. Data on China’s Orient’s NPL purchases are incomplete, but according to its credit rating report, in 2016 it acquired 26.5 billion yuan worth of NPLs for “disposal.”[15] It doesn’t provide a figure for NPLs acquired for “restructuring,” the other major category of NPLs acquired by AMCs. But based on the volume of “restructuring” assets held on China Orient’s balance sheet, it appears to be only a marginal business for the firm.

Figure 2. China Orient, the Outlier
Total bad loan assets at end-2017, by type
Note: “Disposal” refers to those loans and assets that an AMC will either sell to a third party, liquidate, or package into an investment product. “Restructuring” refers to loans for which the AMC will renegotiate the terms with the borrower.
Source: Companies’ earnings and credit rating reports.

In contrast, in 2016 Zheshang Asset Management—the biggest local AMC in Zhejiang province—acquired 25.3 billion yuan worth of bad loans.[16] Meanwhile, Shandong Asset Management—Shandong province’s biggest AMCs—acquired 20.3 billion yuan worth of bad loans from financial institutions.[17]

However, rather than signal the declining relevance of China Orient, 2016 is more likely to mark a turning point for the firm. While Zheshang Asset Management spent 48.4 billion yuan acquiring bad loans in 2017, and Shandong Asset Management spent 33.4 billion yuan—a significant increase for both from the previous year—China Orient more than tripled its NPL purchases, acquiring 86.7 billion yuan worth of bad loans for “disposal” in 2017.

That gap is only likely to widen. In April,[18] China Orient—which is majority owned by the Ministry of Finance—raised 18 billion yuan worth of capital by selling new shares to four strategic investors, including the National Social Security Fund (NSSF), which acquired a 1.74% stake in China Orient, China Telecom which acquired 6.05%, China Reform Capital Corp which acquired 4.72%, and Shanghai Electric which acquired 2.22%.[19] Meanwhile, Shandong AMC, the best capitalized of China’s local bad banks, had a total of only 10.1 billion yuan in capital at the end of March,[20] severely curtailing its ability to keep pace with the big four AMCs.

Great Wall is also in the process of raising fresh capital from strategic investors, which will likely further boost its role as the biggest player in bank NPLs. In late July, Great Wall announced that it was awaiting government approval to sell shares to the NSSF (which will pay 7 billion yuan for an undisclosed stake in Great Wall), China Property & Casualty Reinsurance Co. (which will pay 2.8 billion yuan), and China Continent Property & Casualty Insurance Co. (which is paying 2.2 billion yuan.)[21]

Bad Receivables

Perhaps what is most interesting about Great Wall’s business is not simply that it buys large volumes of NPLs, but rather that those NPLs are primarily from financial institutions. A major part of Huarong and Cinda’s NPL business is acquiring bad debt that has arisen between two non-financial companies, that is, delinquent trade receivables. (See footnote for further explanation).[22] If such debts are taken into account, then Huarong’s NPL purchases eclipse Great Wall—which comes in second—with Huarong acquiring 408 billion yuan worth of bad debt in 2017, compared to Great Wall’s 250.4 billion yuan and Cinda’s 202.1 billion yuan worth of distressed debt purchases.

Figure 3. Acquisitive Acquirers
Relative size of combined NPLs acquired from financial institutions, and delinquent trade receivables (in billion yuan)
Notes: “Zheshang” refers to Zheshang Asset Management; “Shandong” refers to Shandong Asset Management.
China Orient data does not fully represent the company’s NPL acquisitions. See text. 
Source: Companies’ earnings and credit rating reports.

However, Great Wall never embraced the trade receivables business to the same extent that Huarong and Cinda did, both of which were approved by regulators early on to engage in the business. Overdue accounts receivables have risen over the last few years, putting pressure on companies that have nominally made sales but don’t have any cash to show for it. However, it appears that at least in some cases the debts the AMCs are acquiring are between related parties, with the net effect being that the AMCs are simply making a loan (for a more detailed explanation, please see here). Huarong and Cinda have embraced the receivables business to such an extent that their acquisitions of bad debt from non-financial enterprises now dwarf that of less profitable bad loans acquired from banks. While there’s unquestionably a role for the AMCs in relieving pressure on corporate liquidity, Beijing’s more pressing priority is relieving pressure directly on the financial system—which is where Great Wall has focused its efforts.


Having spent a decade diversifying, the big four AMCs are now returning to their core competence and dedicating more resources and energy to resolving NPLs. The transition will be more difficult for some of these firms than others, but ultimately it will allow Beijing to mobilize greater resources in its effort to clean up the financial system.


[1] Their full names are China Huarong Asset Management Co., China Cinda Asset Management Co., China Orient Asset Management Co., and China Great Wall Asset Management Co.

[2] On July 11, China Lianhe Credit Rating Co. published a credit rating report on Great Wall. That seems to have been prompted by Great Wall having raised 7.5 billion yuan in May by selling a 10-year bond in the interbank market, which the company says it’s the first time its openly sold debt since restructuring into a stockholding company in 2016. Meanwhile, China Orient has sold three bonds since September last year. Consequently, is has publicly issued an earnings report for 2017, and has had a credit rating report published.

[3] “服务国家战略全力以赴打好防风险攻坚战——中国长城资产举行专场新闻发布会” (“Go all out to serve the national strategy – Great Wall host’s special press conference”), China Great Wall Asset Management Co., July 27, 2018

[4] “中国长城资产在京召开2017年度工作会议” (“Great Wall holds 2017 annual work conference in Beijing”), Great Wall Asset Managemen Co., January 24, 2017.

[5] Based on interviews with NPL investors and consultants.

[6] Choi Chi-Yuk, “Chinese corruption inquiry finds US$39 million in cash at homes of ex-boss of Huarong Asset Management,” South China Morning Post, August 11, 2018

[7] Aizhu Chen and Lin Qi, “China’s Huarong Asset buys 36.2 percent stake in CEFC China unit: filing,” Reuters, March 9, 2018

[8] “东方资管改制不改向 不良资产处置仍为主业” (“China Orient reforming structure not direction; NPL disposals remain core business”), Hexun, October 17, 2016

[9] “中国银监会印发《金融资产管理公司资本管理办法(试行)》” (CBRC “Administrative Measures for Asset Management Companies’ Capital (Trial)” ), December 29, 2017

[10] Choi Chi-Yuk, “Chinese corruption inquiry finds US$39 million in cash at homes of ex-boss of Huarong Asset Management,” South China Morning Post, August 11, 2018

[11] “中国华融新闻发言人就近期事件答记者问” (“Q&A with Huarong spokesperson about recent events”), Huarong, April 27, 2018

[12] “做强做好不良资产主业 努力实现高质量发展——中国华融召开分公司主业发展专题会议” (“Strong and good NPL operations; work toward high quality development – Huarong opens core business development meeting”), Huarong, June 8, 2018

[13] Yi Zhi, “长城资产:新时代打造新增长内涵” (Great Wall: Forging New Meaning in a New Era), Talents Magazine, April 18, 2018

[14] Jiang Qiongsi, “四大AMC积极“补血” 做大做强不良资产处置主业” (“Big 4 AMC’s ‘blood transfusion;’ strong and good NPL disposal business”), Shanghai Securities News, April 20, 2018

[15] The data is from a credit rating report published by China Chengxin Credit Rating Groupon July 30, 2018.

[16] Data disclosed in a credit rating report for Zheshang Asset Management’s parent, Zhejiang International Business Group. (China Lianhe Credit Rating Co, June 19, 2018. 浙江省国际贸易集团有限公司跟踪评级报告)

[17] China Lianhe Credit Rating Co.,Shandong Asset Management Co Credit Rating Report, August 12, 2018. (山东省金融资产管理股份有限公司2018 年度第一期中期票据信用评级报告)

[18] “中国东方资产管理股份有限公司顺利完成引入战略投资者工作” (“China Orient Smoothly Absorbs Strategic Investors”), China Orient, May 22, 2018

[19] China Orient July 17 2018 bond prospectus (2018 年第一期中国东方资产管理股份有限公司金融债(债券通)券募集说明书).

[20] China Lianhe Credit Rating Co.,Shandong Asset Management Co Credit Rating Report, August 12, 2018. (山东省金融资产管理股份有限公司2018 年度第一期中期票据信用评级报告)

[21] “长城资产拟引入四家战略投资者募资121亿元” (Great Wall Absorbs Four Strategic Investors, Raising 12.1 Billion Yuan), Xinhua, July 27, 2018

[22] For example, Company A may agree to sell 1000 yuan worth of widgets to Company B, but as a sales inducement agree not to require payment for six months. But if Company B fails to pay in six months, then Company A is stuck with what is effectively a bad loan. The AMCs have built profitable businesses by acquiring delinquent debts from firms like Company A.

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