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of employment insecurity. Third, although the AMCs are expected to engage in a broad range of financial activities, e.g.,
loan recovery, venture capital activities, strategic consulting and investment banking, their
employees lack the necessary skills to fulfill these tasks. John Bonin, a professor from Wesleyan
University, said in his working paper " Dealing with the Bad Loans of the Chinese Banks", "after
five months of operation, Cinda already suffers from two labor problems, redundant workers and
the lack of necessary skills in its labor force" 39 . A staff member from one of the AMCs said in an John P. Bonin and Yiping Huang, Dealing with the Bad Loans of the Chinese Banks, Working Paper Number 357,
01/2001, Wesleyan University and Australian National Unviersity
39 interview: " the kind of work we are doing requires high quality and committed professionals.
But we do not feel secured in our positions". Legal Enforcement of Rights
The lack of an effective insolvency system will be a major issue for NPL investors who have to
deal with SOEs in China. First, the government administrative department with responsibility for
the SOE has the power to veto the bankruptcy, thereby depriving creditors of their rights or at
least indefinitely delaying enforcement. Even if an SOE is successfully declared bankrupt and
placed in the hands of a court-appointed liquidation committee, that committee will mainly
comprise government staff, who lack the incentive and knowledge to deal effectively with the
liquidation of an SOE's assets. The bankruptcy system places creditors at a further disadvantage
by requiring that an SOE's legal obligations to its employees be placed before obligations to
creditors 40 . Moreover, at all stages of the bankruptcy process, there is tendency for local
protectionism to prevail, especially in the context of an SOE, making results highly
unpredictable 41 In theory, recourse to China's courts is available. Under the Chinese law, a creditor can generally
request the court to enforce its rights within two years of the date when a debt falls due and is
unpaid. If the debt remains unpaid and creditor takes the matter to court, it will generally take 40
41 The Bankruptcy Law, Art. 34.
David Pierce and Lawrence Yee, China's Bank Asset Management Companies, p.11, O'Melveneny & Myers LLP 48 about nine months for the Chinese court to reach a decision and hand down a judgment. Once a
judgment is obtained, difficulties may arise with regard to enforcement of such judgment42 Although on an application for enforcement against a debtor, a Chinese court has a number of
sanctions available, such as ordering the freezing and transfer of the debtor's assets, attachment
of the debtor's income, delivery to the court of certificates of title and forced sale or auction of a
debtor's property, the enforcement process tends to be protracted and depends heavily on the
proper exercise of judicial discretion. The present bankruptcy system, which has rarely been
invoked in practice, is subject to administrative interference and large amount of discretion is
vested in judges who may be subject to local influences 43 42
4 David Pierce and Lawrence...
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This document was uploaded on 03/12/2014.
- Spring '14