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Navigating PRC NPLs: Insights and Developments in Asian Markets

This document provides a detailed examination of the evolving landscape of non-performing loans (NPLs) in the People's Republic of China (PRC) as of November 2003. It outlines the establishment of Asset Management Companies (AMCs) like Cinda and Huarong in 1999, discussing the transfer of 1.4 trillion yuan in NPLs by major banks. Key issues addressed include the legal framework surrounding bankruptcy, state ownership in a socialist economy, and the challenges of real estate enforcement. Insights into restructuring experiences emphasize the need for merging international expertise with local know-how.

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Navigating PRC NPLs: Insights and Developments in Asian Markets

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  1. Developing the Asian MarketsPRC Experience David Kidd Allen & Overy 11 November 2003 ALLEN & OVERY

  2. PRC NPLs - the story so far • AMCs (Cinda, Huarong, Great Wall, China Orient) established in 1999 • 1.4 trillion yuan (US$170 billion) transferred by ICBC, BOC, CCB and ABC • To date 21.5% sold by AMCs • “NPLs cloud Big Four banks” - 6.11.03 ALLEN & OVERY

  3. Resolution issues • Legal framework • State ownership • Real estate • Restructuring culture ALLEN & OVERY

  4. Legal framework • 1986 Trial Bankruptcy Law • 1991 Civil Procedure Law • 2002 Supreme Court interpretation • New law in 2004? • GITIC landmark (cf GDE) • Judiciary ALLEN & OVERY

  5. State ownership • PRC a socialist centrally planned economy • Approval processes are slow • Move towards private ownership and improved corporate governance • Role of SOEs in employee welfare ALLEN & OVERY

  6. Real Estate • All land owned by state (urban) or collectives (rural) • Allocated/Granted/Leased • Security over tangibles • Enforcement slow • Employee rights ALLEN & OVERY

  7. Restructuring experience • GDE/FJE/ITICs/Zhu Kwan • Government support after GITIC • Inertia, indecision and limited local experience (but no dominant family interests) • Must combine international experience with local knowledge through strong servicing vehicles ALLEN & OVERY

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