At the end of 2002, the first two joint asset management companies
were approved by China's financial authority, a virtual green light
for the entry of foreign capital into China's domestic
non-performing asset (NPA) market.
"China plans to expand the use of foreign capital to manage its bad
assets," said Yang Kaisheng, president of China Huarong Asset
Management Company (CHAMC).
Yang said bad assets are like "an ice-cream you are holding in your
hand", which, if you hold it too long, will melt away. It is
crucial to handle China's bad assets more efficiently before they
"melt in our hands," he added.
The CHAMC conducted its initial trial of using foreign capital to
handle domestic non-performing assets in February 2001. In 2002,
four state-owned asset management companies concluded successful
agreements with overseas investors to manage bad assets.
The latest official statistics show that China's four state-owned
asset management companies had handled 232.3 billion yuan (US$29
billion) by the end of September 2002, over 10 percent of which
were handled with the involvement of foreign capital.
China basically follows two patterns to employ foreign capital to
handle domestic non-performing assets, said Xue Jie from the
Oriental Asset Management Company (OAMC), one of the four
state-owned asset management companies which has claimed successful
handling of four billion yuan worth of bad assets by using foreign
capital since its establishment in 1999.
Xue said the first is to invite foreign investors. Local asset
management companies invite foreign capital into China's domestic
market to co-handle the non-performing assets by establishing a
joint asset management company.
"This pattern is also called the CHAMC pattern within the industry
since the CHAMC was the first one to cooperate with foreign
investors in this way and has now become a major 'issuer of
invitations'," Xue added.
The other pattern is called "the OAMC pattern" because of the
initiative taken by the OAMC, Xue said.
"In this pattern we take the bad assets to the international market
and sell them to overseas investors, most of which are medium and
small investors", Xue said.
"Most medium and small investors want to be rewarded with
considerable profits in a short period of time, and the OAMC
pattern caters to that wish," Xue added.
Xue said the flexible policy China has adopted in inviting foreign
capital to take part in the handling of China's bad assets has
proven to be quite attractive to overseas investors.
He
said the OAMC has developed very good relations with big name
foreign investors like Morgan Stanley and Goldman Sachs, as well as
with some medium and small ones, in the past two years.
On
December 6 of this year, an agreement was signed between the OAMC
and Chenery Capital Incorporated (CCI), a medium-sized American
investment company. In accordance with the agreement, the OAMC sold
its 60 projects valued at 1.8 billion yuan to the CCI, which headed
an investment group backed by scores of small American
investors.
Roy Hann, managing director of the CCI, said that foreign investors
are eager to get into China's bad asset market, especially in view
of China's "continuous, fast and robust" economic growth.
Foreign investors, regardless of their size, see a huge potential
for profit in China's non-performing asset market, Hann said.
"What especially delights us is the opportunity we have to
contribute to the restructuring of many of China's state-owned
enterprises," said Hann.
Larger-scale projects are in the pipeline for next year, said
sources from the four state-owned asset companies, among them, a
five billion yuan overseas sales project by the OAMC and CHAMC's
second international bid scheme.
(Xinhua News Agency January 1, 2003)