China: Government AMCs to become new conglomerates


Lawrence White
Published on:

Lack of transparency concerns potential partners; Cinda leads the group in JV creation

The four asset management companies set up by the Chinese government to house bad bank assets are poised to outlive their original purpose and become financial conglomerates, according to a report by Shanghai-based research company Z-Ben Advisors.

The four AMCs – Cinda, Huarong, Orient and GreatWall – were set up following the banking recession of 1999 to dispose of the non-performing loans that had accumulated on the books of China’s four largest banks. From 2000 onwards the AMCs have also been expanding their business lines by rehabilitating the distressed financial institutions they have inherited.

Now Z-Ben says indications from the finance ministry and market chatter about initial public offerings of the AMCs suggest they are being encouraged to become profitable in their own right. Foreign companies are interested in the potential for business tie-ups that the AMCs offer, the report says, but are nervous because of the lack of publicly available information on their performance.

Failure or great potential?

"Some commentators who have been following the AMCs since they were created are saying: ‘These things have failed at what they were meant to do’," says Min Tha Graw, associate director at Z-Ben Advisors.

"Some commentators are saying: ‘These things have failed at what they were meant to do’. Meanwhile, local sources are saying: ‘We have dealt with these issues before, there’s great potential here’"

Min Tha Graw, Z-Ben Advisors

"Meanwhile," he continues, "a lot of local sources are saying: ‘We have dealt with these issues before, there’s great potential here’. Without access to the AMCs’ financials there’s no way of knowing which side’s right, and our analyst has gone far and wide looking for the numbers without success."

The report says the finance ministry’s intervention in an attempt by Industrial and Commercial Bank of China to acquire its affiliated AMC, Huarong, suggests that the ministry is keen to see the AMCs remain as independent entities. But their ability to do so will depend on whether or not they can move beyond their area of expertise in dealing with distressed assets and prove ­successful in running subsidiaries covering such specialities as broking, private equity, fund management and insurance.

As Euromoney reported in January 2009 (NPLs: China’s trillion renminbi problem), it has never been clear if the AMCs have ever been profitable. They are funded by borrowing from the People’s Bank of China and by issuing bonds at 2.25%; because of the lack of data available it is unclear if they generate positive returns.


Of the four, Z-Ben’s report singles out Cinda, the AMC affiliated with China Construction Bank, as having made the most progress. It notes: "In 2006, Cinda declared itself mostly free of NPLs and began to expand rapidly through restructuring, forming JV partnerships and setting up greenfield entities. As a result, the firm now has subsidiaries in almost every financial services segment."

With the bad bank model back in the headlines after its widespread adoption during the crisis, the significance of the AMCs’ attempts to outlive their original purpose extends beyond China. With little experience outside their comfort zone of bad asset disposal, however, and facing increasingly savvy local competition in the business lines they are trying to develop, the AMCs are facing a difficult task.