'Bad Banks' with Chinese Characteristics: an Ongoing Transformation. Issue 133 (2nd January 2022)

• Record Type: Journal Article
• Authors: Pereša, Irena; Vidon, Edouard
• Is Part Of: Journal of contemporary China. Volume 31:Issue 133(2022)
• Page Start: 136
• Page End: 152
• Publication Date: 2022-01-02
• Subjects: China -- Periodicals; China -- Politics and government -- 1976- -- Periodicals; Chine -- Périodiques; Chine -- Politique et gouvernement -- 1976- -- Périodiques; 306.0951
• DOI: 10.1080/10670564.2021.1926102
• Languages: English
• ISSNs: 1067-0564

Abstract

ABSTRACT: This article analyzes the experience of four asset management companies (AMCs) or ʽbad banks' established in China in 1999 to address a systemic build-up of non-performing loans (NPLs). It describes the modalities of NPL transfers across several rounds of government interventions. It explains the AMCs evolving asset structure, funding and operations, with particular focus on a significant change in their business model. Overall, AMCs have helped stabilize the Chinese financial sector, albeit at a substantial fiscal cost. While they became permanent features of the financial system, the expansion of non-core activities has reduced their ability to perform their original function and generated additional systemic risk. Recent developments point to a renewed role, although a deeper reform of the NPL market will also be needed.