Non-Performing Loan Securitization in the People’s Republic of China

Chinese authorities have initiated disposal methods ranging from loans sales to debtfor-equity swaps to resolve the country’s Non-Performing Loans (NPL). NPL securitization, a form of structured finance, tops the list of innovative financing techniques to resolve the remaining USD$73.1 billion of the original USD$170 billion removed from the banking system by Asset Management Companies (AMC), which were formed specifically to handle NPL disposal. With increased securitization activity within the Asia-Pacific, this paper seeks to determine if the People’s Republic of China’s (PRC) legal and economic underpinnings are conducive for a broad implementation of NPL securitization. This paper finds that government participation must persist through ongoing policy adjustments, and debt restructuring schemes must be initiated before securitization structures can accommodate the continuing NPL disposal effort and elicit sustained investor interest. 1 I owe the completion of this paper to Nicholas Hope, whose continued support, sustained interest and insightful questions helped immensely in formulating this project. I sincerely acknowledge Jenny Cheung, John Cieslewicz, Gabrielle Moyer, and Hilton Obenzinger for their valuable inputs. I also thank John Shoven and Geoffrey Rothwell for their endorsement of my thesis. 2 As of September, 2003. Asset Management Reference, Sept. 2003. No. 9. Translated from original Chinese text.