Dealing with the Bad Loans of the Chinese Banks

John P. Bonin and Yiping Huang

No 357, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Chinese banks suffer from serious financial fragility manifested by high proportions of non-performing loans and low capital-adequacy ratios. A key policy introduced recently by the Chinese government to reduce financial risks is the establishment of four asset management companies (AMCs) for dealing with bad loans. Drawing on the experiences of the Resolution Trust Corporation in the United States and bank restructuring in the Central European transition economies, we argue that the original AMC design will not be successful in resolving the existing non-performing loans (NPLs) nor will it prevent the creation of new bad loans. We recommend a modification of the current proposal that redefines the relationships between the parent banks and the AMCs by transferring the deposits of problem enterprises along with their NPLs from parent banks to AMCs.

Keywords: bad loans; stae-owned banks; asset management companies; China (search for similar items in EconPapers)
JEL-codes: G21 P34 (search for similar items in EconPapers)
Pages: pages
Date: 2001-01-01
New Economics Papers: this item is included in nep-sea
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Citations: View citations in EconPapers (38)

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