The Asia Global Payment Summit. Bali, Indonesia. 10-11 October 2019

China Opens its First Online Exchange for Distressed Debt

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China’s biggest asset management company has just launched the country’s first online platform that provides for the trading of distressed debt assets, as Beijing endeavours to clean up the banking sector’s bad loans.

The Huarong Zhongguancun Distressed Asset Exchange Company is the first entity in China to be established for the chief purpose of facilitating the trading of bad debt, according to a report from Xinhua.

The company has registered capital of 500 million yuan (approx. USD$80 million) and is situated in Beijing’s hi-tech industry hub of Zhongguancun.

China Huarong Asset Management Company, the largest Chinese financial asset management company in terms of total assets, holds a 58% stake in the platform which it jointly established with Beijng Qibu Tianxia Technology Company and the State-owned Properties Investment & Management Company of Haidian District.

The Wall Street Journal reports that the move comes as Beijing seeks to expand the role of financial markets in the disposal of bad bank loans, which have tripled since the third quarter of 2011, rising to 1.67 trillion yuan (approx. USD$265 billion) as of September 2017.

The existing asset management platforms entrusted with the duty of disposing of the banking sector’s bad debts could be struggling under the weight of this increase.

China Cinda Asset Management, one of the country’s largest managers of bad debt, made referencing to the “increasing supply of distressed assets from financial institutions” in the prospectus for $2.5 billion of bonds priced last week.

China Huarong has reportedly acquired over a trillion yuan in non-performing assets, equal to more than half the market total.

The central government’s banking regulator recently announced that it favours the expanded use of “market-based tools” to address the problem of bad debts.

 

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