Inexperienced firms could worsen debts: report
China has seen a rise in the number of asset management companies (AMCs) this year but this has not helped in resolving bad debts and it could create new problems and add to the already-high risks, Securities Times reported on Monday.
"Many new [AMCs] have almost zero experience in investing in bad debt and investors who lack experience will create a problem: Not only will they not clear up questionable loans - they could cause new losses," Lai Xiaomin, chairman of China Huarong Asset Management Co, told the Securities Times.
Lai also said that the rising number of AMCs is pushing up the prices of assets. "In the past three years, competition from new investors has pushed the prices of bad assets up by at least 10 percent," he said.
The number of domestic AMCs has been increasing for the past couple of years, with regulators having eased restrictions for approval of new AMCs, the report said.
As of Monday, a total of 55 AMCs have gained licenses, according to the Securities Times report. And just this year, there have been 18 AMCs set up by local governments, the report added.
There is no sign that this rising trend will end anytime soon, as governments both at the central and provincial levels have signaled that they support more local AMCs.
Provinces such as Northwest China's Shaanxi and Southwest China's Sichuan are planning to set up AMCs, and others such as East China's Jiangsu Province have released relevant policies to set up more AMCs to address local bad debt issues, the report said.
At the central government level, the China Banking Regulatory Commission in October 2016 issued new measures to allow more local AMCs to invest in bad debts, including a measure to allow provinces to set up more than one AMC. Prior to that, each province was only allowed to set up one AMC.
The move was largely aimed at addressing risks from mounting government debts, media reports said.
China's central and local government leverage ratio has been estimated at between 40 percent and 60 percent. Though the level is still below the global average, the rising debt level has sounded alarms both at home and abroad, according to a report on yicai.com on October 1.