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Unformatted text preview: dollars and issued in Hong
Kong. Company traded in more than one market could have very different stock prices in each market. For example, the stock price of A share of Jiangling Motors is almost four times of that
of B shares in early February 2001. The market fragmentation contributes to the price distortion
and speculative tenor of the market. Fourth, the stock market is lack of adequate supervision and control. The Chinese stock market
has serious problems such as inadequate disclosure of corporate information and existence of a
host of illegal practices. Since the beginning of 2001, the CSRC has started to go after illegal
activities and promote transparency. But it will take a long time for the CSRC to establish a
sophisticated supervisory system and for the market to foster a culture of ethics. Given the fact that the capital market in China is not mature enough, it would be difficult for the
AMCs to utilize the capital market to solve the NPL problem, either through IPOs of SOEs or
through securitization of NPLs. The AMCs have been granted the right of listing sponsorship
and bond/stock underwriting for companies within the scope of asset management. However,
even if the AMCs could successfully list SOE in the stock market, it would be difficult for them
to unload the shares because most of these shares would be state-owned shares which are not
tradable in the stock market at present. In terms of securitization, unless the government cleans
up all the legal obstacles and establishes a modern accounting system quickly, the securitization
as an effective tool for dissolving NPL will not be realized soon. AMCs' Structural Problems - Competitions, Incentives and Skills
The AMCs are temporary financial institutions with multiple roles to play during their ten-year
duration. The inherent structural problem of the AMCs can significantly hamper their efficiency and effectiveness. First, competitions among AMCs could be destructive in the workout process.
Each AMC has been established to take on NPLs from one parent bank. In many cases, a debtor
defaulted to more than one bank and thus is liable to more than one AMC. Each AMC has the
same goal in the work out process, that is, to maximize the recovery rate. Their strategies and
means, however, could be very different, thereby bringing conflicts and causing delays in the
work out process. Second, the AMCs are structured as SOEs with most employees transferred from the parent
banks. Working for a SOB has been the most desirable profession in China's job market because
of the high job security and excellent benefits. Being transferred from a bank to a company with
only ten-year lifetime is equivalent to a pending unemployment for a lot of transferees. The
unsecured job prospect could considerably dampen down the AMC employee incentive to divest
the distressed assets quickly. Although some AMCs have developed incentive schemes to
stimulate employees' efforts, it is unclear how these will be sufficient to overcome the proble...
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This document was uploaded on 03/12/2014.
- Spring '14