An asset management company is to be set up by China in its
northeastern old industrial base to dispose of 140-billion-yuan
worth of non-performing loans (NPLs) of local state-owned
enterprises which have been identified as a main obstacle in their
revitalization.
Zhang Guobao, vice minister of the National Development and
Reform Commission, said China would invite both domestic and
international institutions to participate in the disposal of the
debt.
"The reform of State owned enterprises in northeastern Liaoning,
Jilin and Heilongjiang provinces has been held back by a mountain
of non-performing loans and tight new capital due to their low
credit level," he said at a meeting to discuss the revitalization
of the old industrial base.
Chinese official statistics show loans to local state companies
account for half of all the NPLs at the three provinces' banks and
rural credit cooperatives.
After decades of granting easy loans to loss-making state
companies local banks have become more cautious. At the end of
September about 810 billion yuan (US$103 billion) was sitting idle
on deposit in banks while loans to state companies were
declining.
Zhang said the new provincial-level asset management company in
northeast China would function in a similar way to four other state
asset management companies. It would take over bad debts from local
banks and dispose of them in various ways.
In 1999 China set up four state-run asset management companies
-- Cinda, Orient, Great Wall and Huarong -- to take over a mountain
of NPLs from the country's big four state-owned commercial
banks.
These companies auction off physical assets from debtors,
transfer the creditors' rights, issue securities on the bad loans
and find other ways to dispose of the NPLs.
The new asset management company is part of a program to
revitalize the country's old industrial base which has many large
state manufacturing companies and contributed greatly to China's
industrial development during the period of the planned
economy.
But these state companies have become money losers over the past
two decades and have failed to adapt to the country's new economic
environment. They've been forced to layoff thousands of their
workers.
The three-year-old revitalization initiative has accelerated
economic development in northeastern provinces and helped to create
some new jobs.
The province of Liaoning, which once had the country's highest
unemployment rate of around 7 percent, is expected to see that
figure dropping to 5 percent this year, according to official
estimates.
(Xinhua News Agency December 6, 2006)