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analysis

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.

Bad Loans
 
Bad Banks
 
November 28, 2018

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.”[1] But a better explanation is that prices were inflated… READ MORE


Corporate Deleveraging
 
Commercial Paper
 
October 1, 2018

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


Bad Banks
 
September 4, 2018

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… READ MORE


Financial Asset Exchanges
 
Collateral
 
July 25, 2018

When bad loans were first auctioned on Taobao—Alibaba’s e-commerce platform—foreign observers were generally incredulous, chalking it up as the sort of Chinese-style financial innovation that would either not catch on or, if it did, would quickly flame out. More recently, when three Boeing 747s[1] and, separately, a skyscraper[2] were auctioned on Taobao after being seized from delinquent debtors, the media… READ MORE


Creditors’ Committees
 
Corporate Deleveraging
 
June 25, 2018

China’s financial system is a little like the Island of Misfit Toys.[1] From a distance everything looks familiar, but up close it becomes apparent that things aren’t built the way you might expect. Take the country’s money-market funds: they aren’t managed by institutional investors like Vanguard and Fidelity but by internet giants Alibaba and Tencent. Meanwhile, trusts don’t help preserve… READ MORE