China has a longstanding tradition of bailing out large debtors using huge asset management companies (AMCs). But today they cannot solve the country’s real estate problems, says political and financial analyst Victor Shih to the Japan Times. “Any state injection into the AMCs could add further strain to the nation’s finances,” says Victor Shih
The Japan Times:
The savior role is one the asset management companies (AMCs) were set up to play in the wake of the Asian financial crisis as Chinese banks teetered on the brink of collapse. The biggest — China Huarong Asset Management Co. — typified the rot that later set in when it was forced to accept a 42 billion yuan ($6.1 billion) bailout last year and its chairman was executed for crimes including bribery.
The funds “can’t go on rescuing China’s property market this time,” said Victor Shih, author of “Factions and Finance in China: Elite Conflict and Inflation.” “Their own balance sheets are already so saddled with bad debt, they simply don’t have the ability to digest more.”
As recently as February regulators were looking to the AMCs as a solution to the crisis, calling on Huarong and China Cinda Asset Management Co. to help restructure weak developers, acquire stalled property projects and buy soured loans.
These same funds took trillions of yuan of bad loans off the balance sheets of the four biggest banks two decades ago. Once stability was restored, the funds, with combined assets of more than 5 trillion yuan, branched out to new sectors ranging from insurance to brokerages, and increasingly real estate…
Any state injection into the AMCs could add further strain to the nation’s finances. China’s debt to gross domestic product is already at 308%, a risky level that curbs the government’s ability to issue more stimulus, said Shih.
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