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Dealing with the bad loans of the Chinese banks

  • Bonin, John P.
  • Huang, Yiping

Chinese banks suffer from serious financial fragility manifested by high proportions of non-performing loans and low capital-adequacy ratios. A key policy introduced recently by the Chinese government to reduce financial risks is the establishment of four asset management companies (AMCs) for dealing with bad loans. Drawing on the experiences of the Resolution Trust Corporation in the United States and bank restructuring in the Central European transition economies, we argue that the original AMC design will not be successful in resolving the existing non-performing loans (NPLs) nor will it prevent the creation of new bad loans. We recommend a modification of the current proposal that redefines the relationships between the parent banks and the AMCs by transferring the deposits of problem enterprises along with their NPLs from parent banks to AMCs.

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Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 12 (2001)
Issue (Month): 2 ()
Pages: 197-214

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Handle: RePEc:eee:asieco:v:12:y:2001:i:2:p:197-214
Contact details of provider: Web page: http://www.elsevier.com/locate/asieco

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  1. Cheryl W. Gray & Arnold Holle, 1996. "Bank-led restructuring in Poland: the conciliation process in action 1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 349-370, October.
  2. Yiping Huang & Yongzheng Yang, 1998. "China's Financial Fragility and Policy Responses," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 12(2), pages 1-9, November.
  3. John G. Fernald & Oliver D. Babson, 1999. "Why has China survived the Asian crisis so well? What risks remain?," International Finance Discussion Papers 633, Board of Governors of the Federal Reserve System (U.S.).
  4. John P. Bonin & Bozena Leven, 2000. "Can Banks Promote Enterprise Restructuring?: Evidence From a Polish Bank's Experience," William Davidson Institute Working Papers Series 294, William Davidson Institute at the University of Michigan.
  5. Terry Sicular, 1998. "Capital Flight and Foreign Investment: Two Tales From China and Russia," The World Economy, Wiley Blackwell, vol. 21(5), pages 589-602, 07.
  6. Ceyla Pazarbasioglu & Claudia Helene Dziobek, 1997. "Lessons From Systemic Bank Restructuring; A Survey of 24 Countries," IMF Working Papers 97/161, International Monetary Fund.
  7. Cheryl W. Gray & Arnold Holle, 1997. "Bank-led restructuring in Poland (II): bankruptcy and its alternatives," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 5(1), pages 25-44, 05.
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