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China’s toxic debt doctors prepare for surgery

Regulators eager to resolve China's local government debt conundrum are setting standards for an emerging class of asset management companies (AMCs) responsible for settling bad loans without Beijing's help.

One standard, issued in early-December by the China Banking Regulatory Commission (CBRC), set the floor for each local AMC's registered capital at 1 billion yuan. It was the first financial parameter of its kind since CBRC and the Ministry of Finance started promoting these debt restructuring vehicles in May 2012.

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Also in December, CBRC spelled out management staff requirements and corporate governance rules for AMCs.

Every province, autonomous region and municipality in the country is being encouraged to form a single AMC to take over and restructure non-performing assets held by local banks and local government financing vehicles.

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Last year, Jiangsu and Zhejiang provinces, both in the east, became the first to heed the call. The Guangdong and Shanghai governments are close to launching AMCs of their own.

And Caixin has learned that an unnamed provincial government in central China is likewise gearing up with 1 billion yuan in registered capital from the province's largest state-owned investment group.

Beijing authorities could be expecting each of the 22 provinces, five autonomous regions and four municipalities to form an AMC without central government prodding, said a CBRC branch director in a central province where, so far, local officials have not submitted a plan.

Once in place, a local AMC is expected to complement existing debt-cleanup operations carried out by the central government's four AMCs – China Oriental Asset Management, Cinda Asset Management, Huarong Asset Management and Greatwall Asset Management.

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National AMCs have been processing bad assets inherited from the biggest, state-owned banks since 1999. And their power runs deep: They have permission to arrange asset liquidations, debt-equity swaps and bankruptcy auctions.

Local AMCs, whose tasks are limited to debt incurred within the local government's boundaries, would have less clout and fewer responsibilities.

"Establishing a provincial-level AMC can achieve two benefits by maintaining the value of state-owned assets and promoting development at companies" burdened by toxic assets, said a source close to the provincial investment group that is putting together an AMC.


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