A report on the misuse of funds by China's four state-owned
asset management companies (AMCs) released by auditors on Tuesday
has cast doubt on their ability to manage bad debts.
Analysts said yesterday the AMCs would have to work hard to
improve their corporate governance mechanisms and internal control
systems to be able to face challenges lying ahead.
Last year, auditors found irregularities and cases of misuse of
funds involving a combined 71.5 billion yuan (US$8.6 billion),
which accounted for 13 percent of all funds audited.
The AMCs were quick to respond to the audit results. They have
pledged to penalize those responsible and to close loopholes in the
system.
China Cinda Asset Management Corporation said on Wednesday that
it would set up a financial risk research centre to study measures
for more effective bad debt resolution.
China Orient Asset Management Corporation has started a 10-day
education program for staffers on compliance.
But more hard work lies ahead, analysts say. "From the very
beginning, when the AMCs were created, there was already the
absence of a sound corporate governance structure," Yan Qingming,
director of the Banking Supervision Department under the China
Banking Regulatory Commission, told a seminar on Wednesday.
"Regulators need to scrutinize their corporate governance
policies," he said, adding that his commission and the Ministry of
FinanceĀ are working on measures to enhance the supervision of
the AMCs, including stricter information disclosure
requirements.
Wang Songqi, a senior economist at the Chinese Academy of Social
Sciences, is less supportive.
"It's quite expensive and inefficient to operate asset
management companies like these," he said.
"Why do we need them in the first place if what they are doing
can simply be done by some other intermediaries or by the banks
themselves?" Wang added.
The four AMCs were established in 1999 to take over a combined
1.4 trillion yuan (US$168 billion) of bad loans from the big four
state-owned commercial banks in a major drive to resolve bad debt
issues in the banking sector.
The AMCs had disposed of 688.6 billion yuan (US$83 billion) of
non-performing loans by the end of March, recovering cash
equivalents of about 20 percent of their face value, which some
analysts say underperformed other emerging markets.
In addition to accusations of inefficiency, analysts are
uncertain about the competence of the AMCs to be successful debt
clearers.
The AMCs are allowed to work as commercial debt clearers only if
they have completed their policy-based bad loans disposal
commitments by the end of next year.
The AMCs might not only find it difficult to win commercial
deals once their privileges are revoked with increased market
reforms, they will also face fierce competition in investment
banking, an area they plan to venture into, analysts say.
The Ministry of Finance, currently the sole owner of the four
AMCs, is soliciting opinions from the firms about a draft reform
plan, which requires them to undergo joint stock restructuring and
working with strategic investors both local and foreign, sources
said.
(China Daily July 1, 2005)