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Navigating PRC Non-Performing Loans: Insights from the Asian Markets Experience

On November 11, 2003, David Kidd from Allen & Overy delved into the evolving landscape of non-performing loans (NPLs) in the People's Republic of China (PRC). Key developments include the establishment of Asset Management Companies (AMCs) in 1999, handling approximately 1.4 trillion yuan (US$170 billion) in NPLs. The legal framework has seen significant updates since the 1986 Bankruptcy Law, alongside challenges tied to state ownership and real estate complexities. The journey toward improved corporate governance and private ownership illustrates the intricate balance between international expertise and local insights needed to navigate this evolving market.

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Navigating PRC Non-Performing Loans: Insights from the Asian Markets Experience

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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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