China to ‘merge’ bad-debt managers into CIC

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.