SHANGHAI, March 7 The Shanghai government has
approved a city-owned investment company to buy non-performing
loans from local banks, state media reported on Friday, becoming
the latest Chinese local government bracing for an expected rise
in bad debt.
Shanghai's launch of a dedicated "bad loan bank" follows
similar moves by the wealthy eastern provinces of Jiangsu and
Zhejiang. Analysts expect a rise in bad loans in the coming
years as China's economy slows, with loans to local governments
and industries suffering from overcapacity a key source of
Unlike earlier bad loan banks, Shanghai has authorised an
existing state-owned firm, Shanghai State-owned Assets Operation
Co Ltd, to purchase non-performing loans and other assets from
local financial institutions, rather than creating a new entity,
China Business News reported, citing a source close to the
firm's parent company.
Shanghai State-owned Assets already owns equity in local
banks including Bank of Shanghai, Shanghai Rural Commercial
Bank, and the brokerage Guotai Junan Securities.
The central government established four national-level asset
management companies (AMCs) in 1999 to clear off bad loans from
the biggest state-owned banks. They purchased about 2.38
trillion yuan in bad loans between 1999 and 2008.
In 2012 the Ministry of Finance authorized local governments
to establish local AMCs to do the same for local banks.
The first bad-loan purchase by Shanghai State-owned Assets
may be bank loans to Shanghai Chaori Solar Energy Science and
Technology Co Ltd, the loss-making solar equipment
producer that is also poised to default on a bond interest
payment on Friday, becoming China's first-ever domestic bond
default, the paper reported.
Bank of Shanghai is involved in a dispute with Chaori over
75 million yuan in outstanding loans outstanding, the paper
reported. It also has 600 million yuan outstanding to Suntech
Power Holdings Co Ltd, another struggling solar firm
that has defaulted on its offshore bonds.