China to ‘merge’ bad-debt managers into CIC

China to ‘merge’ bad-debt managers into CIC

China plans to “merge” three of its biggest bad debt managers into China Investment Corp., the country’s $1.24 trillion sovereign wealth fund, Xinhua News Agency reported Sunday, citing unidentified people.

The extent of the transfer of China Cinda Asset Management Co., China Orient Asset Management Co. and China Great Wall Asset Management Co. wasn’t clear in the report. The move is being taken as part of China’s plan to reform institutions, Xinhua said in a short report without providing additional details.

Bloomberg News reported in May last year that China was considering transferring the state’s stakes in the three bad debt managers to Central Huijin Investment Ltd., a unit of CIC.

CIC and the Ministry of Finance didn’t immediately reply to requests for comment.

While the move will allow Beijing to separate the government’s roles as a regulator and shareholder in order to better focus on curbing risks, the transfers could raise questions over the strength of direct government support. Concerns over reduced government support for the AMCs had just led to a downgrade by Fitch Ratings Ltd. earlier this month.

Central Huijin has long been the primary vehicle for holding the state’s stake in many of the country’s largest financial institutions. It has direct ownership in 19 financial institutions as of end-June, according to its website.

China Huarong Asset Management Co., once the biggest among so-called AMCs, is not part of the transfers after a government-orchestrated bailout in 2021 that saw Citic Group become its largest shareholder. Huarong roiled Asian credit markets in 2021 as it failed to release its annual report on time, eventually revealing a massive loss for 2020.

China created Cinda, Great Wall, Orient and Huarong to buy bad loans from banks in the aftermath of the late 1990s Asian financial crisis, when decades of government-directed lending to state companies had left China’s biggest lenders on the brink of insolvency. The firms later expanded beyond their original mandate, creating a labyrinth of subsidiaries to engage in other financial businesses, including shadow lending.