The China Banking Regulatory Commission (CBRC) pledged Wednesday to further strengthen control of asset management companies involved in the non-performing loans market.

The move by the CBRC is expected to help the industry develop on more sound footing.

"It is definitely a welcome message for foreign investors. A more regulated market will invite in more foreign capital," said Brian Cheung, a Hong Kong-based partner with PricewaterhouseCoopers.

The banking regulator said in a statement it has detected illegal practices used to dispose of non-performing loans (NPL).

Some local banks and asset management companies, for instance, have conspired to fake records, leading to losses of State assets.

Internal deals and insider trading also exist in the NPL market, hurting the credibility of the NPL disposal process. False bids auctions still exist, the CBRC said.

In addition, internal control systems in some financial firms are a mere formality, without any real effect.

The legal environment for the NPL market is also imperfect and some local government departments have stepped in to deal with some cases.

The CBRC did not disclose any names, but it vowed to take legal action.

In a series of new attempts to clean up malpractice, CBRC urged asset management companies to improve their governance structure.

The commission vowed to speed up drafting of new regulations, including guidelines for asset management companies, regulations on information disclosure and stricter consequences for financial mishandlings.

Also yesterday, the State Administration of Foreign Exchange released a circular on disposal of NPLs with foreign investors, which would lead to more foreign investors registering at foreign exchange and tax offices when their deals are approved.

"Strengthening the regulation for disposals to foreign investors is clearly a step in the right direction," Cheung said.

(China Daily December 30, 2004)