Beyond Hello Kitty: Taobao emerges as prime platform for bad loans

PUBLISHED : Thursday, 17 December, 2015, 8:04pm
UPDATED : Thursday, 17 December, 2015, 10:46pm

Taobao, China’s biggest online shopping platform, is hawking off a bit more than Korean cosmetics and Hello Kitty socks these days.

The site, owned by Alibaba Group Holding, has become China’s premier venue for selling toxic assets directly to anyone looking for claim on bad debt from a make-up factory in Jiangsu province or a drug factory in Zhejiang.

China Huarong Asset Management, which went public in Hong Kong last month and is one of four state-backed “bad banks”, said this week that it plans to sell off 51.5 billion yuan worth of bad debt via Taobao.

The bad loans, bought off Chinese banks in Zhejiang and Jiangsu, would be sold across mainland China.

READ MORE: Bad-debt investment products present new risks in China

China Cinda Asset Management, another state-controlled bad-debt manager, was the first firm to sell distressed debt on Taobao’s auction platform. In March, the Zhejiang branch of the company sold off two bad debt contracts on a Taobao page for a total 24.5 million yuan. The two contracts sold in eight hours, after garnering a combined 7,978 views. The company said in May that it would sell 4 billion yuan on the platform.

An auction manager at the time told the South China Morning Post that Cinda was positioning to make the platform a long-termsolution for bringing to the market the huge amount of bad debt accumulating in China’s banking system.

A manager for a current Cinda bad-debt sale said on Thursday that he could not comment on the deal.

Taobao’s financial asset disposal platform has its roots in a judiciary assets disposal programme set up in 2012 to sell off seized assets, according to research from a global financial services firm.

A year ago, China Merchant Bank and China Minsheng Bank listed collateral for loans on the Taobao platform but the auctions failed due to low demand.

However, commercial banks were only allowed to sell the collateral for assets, not bad debt. Sales of non-performing-loan (NPL) portfolios, which can come at a sharp discount, have been reserved for state asset managers. Those auctions have garnered far more attention – not only because of the strong demand for the assets but also due to questions on the viability of the platform for pawning off China’s bad debt.

A report from China Orient Asset Management, issued last month, said it expected China’s non-performing loan ratio to continue to rise for the next four to six quarters.

Four central asset managers were set up by the central government in 1999 to directly unload sour debt from China’s four state commercial banks. Over the past two years, more than 20 banks have entered the market, hoping to sell off bad debt only to find tepid demand from asset managers, which have become diversified investment banks.

Selling NPLs online to the highest bidder may help the banks and the so-called “bad banks” digest more of the supply of the bad debt. However, Taobao has yet to answer questions on the need for licensing to operate such a platform.

The company did not respond to questions on whether it needed an auction licence, which is standard for offline sale of NPLs. Industry sources have reported Taobao as saying it is a platform for auctioning assets but does not conduct the auctions itself, and therefore does not need a licence.