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 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


Financial Asset Exchanges
 
May 3, 2018

Financial asset exchanges are a distinctly Chinese type of financial institution. There are dozens of financial asset exchanges operating around the country as electronic auction houses and online fundraising platforms. They operate as a place where equity in state and private companies that are not listed on a stock exchange can be marketed and auctioned openly. They’re used by leasing… READ MORE


Asset-Backed Securities
 
April 9, 2018

When, in May 2016, Beijing first allowed banks to package nonperforming loans (NPLs) into asset-backed securities (ABS), it was greeted as an important new tool for helping banks clean-up their balance sheets. After almost two years, however, the issuance of NPL ABS remain relatively thin. In fact, the total value of bad loans packaged into ABS in the whole of 2017 was less than… READ MORE