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)