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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.

Consumer Debt
February 1, 2019

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

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
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