The Cleanup features regular and in-depth analysis of the ways China’s financial system is dealing with the risks that potentially threaten its stability.
Since 2016, China’s financial authorities have been quietly pushing the banks to dispose of their bad loans more aggressively. The process has been incremental, but cumulatively meaningful. The measured pace at which Beijing is pursuing its debt cleanup could easily be misconstrued as timidity, a sign that China’s political leaders remain either uncommitted to dealing with the risk or unconvinced… READ MORE
For most of the loans in China’s financial system, when they turn bad there is some sort of security that allows the lender to claw back some, or even most, of what they’re owed. Much of that collateral takes the form of real estate, but collateral can also range from warehouses and factories in the case of corporate loans to… READ MORE
At the end of 2017, China’s market for nonperforming loans (NPLs) was a bubble. Asset management corporations (AMCs) and investors were willing to pay huge price premiums for banks’ bad loans. The president of China Great Wall Asset Management Co., Zhou Liyao, attributed the bubble to a period of “irrational exuberance.” But a better explanation is that prices were inflated… READ MORE
In 2016, a spate of fraud involving bankers’ acceptance drafts (BADs) and commercial acceptances drafts (CADs)—which are collectively called commercial paper or corporate bills—led to a major contraction in both their issuance and the volume of bills that are discounted. While that has seemingly helped erase the worst abuses, the fallout is still being felt in the real economy. Commercial… READ MORE
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 —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… READ MORE
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