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Unformatted text preview: ble 2, Great Wall AMC’s cash recovery ratio of 10.28 percent was among
the lowest of the group. This was due to the low quality loans it took over from the ABC, which
historically financed a large number of rural enterprises. On the other hand, Cinda AMC has the
highest cash recovery ratio among the group. Cinda was originally matched up with the CCB in
1999, which historically provided financings for capital construction projects and urban housing
development. These real estate assets are substantially more liquid than other collaterals, thus
maximizing the recovery value. According to Cinda’s website, more than 26 percent of the NPLs
it purchased in 1999 were collateralized by real estate assets. Huarong got the largest number of
NPLs from ICBC. By now, it has disposed around 70 percent of the NPLs as of March 31, 2006.
Orient acquired the least number of NPLs from its parent bank, BOC, but has achieved the lowest 142 研 究 所 年 報 accumulative asset recovery ratio among all four AMCs. IV.�Sources�of�NPLs�in�China�
As Zhou Xiaochuang, President of People’s Bank of China (PBoC) said in 2004 “among all the
NPLs in SOCBs, around 30% is the result of intervention by the central and local governments;
around 30% is due to the financial support to SOEs; around 10% is owing to the lack of appropriate
regulation and execution of law; around 10% is due to the adjustment of industrial structure and
hence the closure of some enterprises; only 20% is the result of poor management of the banks”.
To summarize, China’s current daunting NPL level is primarily the result of:
• Over 40 years of extensive policy lending under a centrally planned economy;
• Low operating efficiency of State-Owned Enterprises (“SOEs”);
• Weak corporate governance and operational skills of banks.
The NPLs generated before Chinese banking reform of 1994 is mainly the result of extensive
policy lending and the low efficiency of SOEs while the NPLs generated after 1994 is mainly the
result of lack efficient corporate governance and operational skills. Extensive�policy�lending�under�planned�economy
The current NPLs dilemma is the product of a legacy of central planning, and the main players
in the drama are Chinese government officials, particularly members of local governments. Before
the banking reform of 1994, Chinese government routinely mandated that the SOCBs lend to
SOEs for insolvent SOEs, key infrastructure projects and social welfare subsidies, regardless of
profitability. The policy lending was made due to three reasons. First, the price system failed to
induce the optimal allocation of resources for investment at the enterprise level. For example,
both the rental rate for housing and the price of electricity for industrial and residential use
had long been ridiculously low. However, it did not discourage large scale investment in both
housing and electric power plants since the investment in these two areas is mainly induced
by favorable policy lending, which would fin...
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- Spring '14