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China banking: Cinda – on the ball or to the wall?

Asset management company Cinda is a stark example of the implausible nature of China’s financial system. It has transformed its business model from an NPL warehouse to what some call a giant shadow bank. With more AMCs in the pipeline, analysts are beginning to question if China understands the risks it is piling up.

Hou Jianhang-envelope2
Cinda Asset Management chairman Hou Jianhang has transformed the AMC from a 'bad bank into a giant shadow bank', says one China economist

China hardly lacks for lending institutions. Bloated state giants, nimbler city commercial rivals, rural credit cooperatives: all jostle for space in Asia’s largest economy. In recent months, Beijing has moved to foster the expansion of an innovative yet often overlooked slice of the financial sector, one that has become central to the country’s broader economic well-being: bad banks.

In late July, China’s banking regulator, the CBRC, approved the creation of five new asset management companies (AMCs) in four eastern and southern provinces – Anhui, Guangdong, Jiangsu, and Zhejiang – and one city, Shanghai. Four of these de-facto bad banks are state owned; one, Anhui Guohuo, based in the provincial capital Hefei, will source at least part of its Rmb1 billion ($163 million) in paid-up capital from the private sector.

All are vested with buying, processing and ultimately selling non-performing loans (NPLs) weighing down the books and share prices of leading state banks.

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