China’s distressed asset managers in the spotlight, ‘rescue’ role of troubled state-backed firms questioned amid property woes
- China is seeking to defuse financial risks, with asset management companies expected to help other ailing sectors, particularly property developers
- The firms, though, are already highly leveraged due to bond financing and exposure to the troubled real estate sector
China’s troubled state-backed distressed asset managers have been given the green light to expand their operations, but analysts are increasingly doubtful about their ability to mitigate risks to the nation’s financial system.
Analytics firm S&P Ratings said on Tuesday that it expected China’s four main asset management companies (AMCs) – firms originally set up to isolate and manage bad debt for the nation’s biggest banks – to continue playing a stabilising role amid the property crisis.
“[But] due to significant pressure on their own capital, profitability and asset quality, the rescue role they can play in this economic downturn is limited, and some institutions themselves have become the ones being rescued,” they said.
China’s four main asset management firms – Cinda Asset Management Company, Citic Financial Asset Management, Great Wall and Orient – were set up in the wake of the Asian financial crisis in 1999, taking on 1.4 trillion yuan of non-performing loans from the four biggest state-owned banks.
A fifth national AMC, Galaxy, was formed in 2020 over worries about the coronavirus pandemic triggering a wave of corporate defaults.
