The recovery rate for the mainland's 1.4 trillion yuan (HK$1.3 trillion) in bad debt is likely to improve over time because the remaining assets include a large pool of companies which can be restructured into profit-making businesses.
The nation's asset management companies had sold off a large portion of their non-performing loans and were now facing the challenge of turning around companies and selling them to investors, said Wang Haijun, executive director for investment banking at China Cinda Asset Management Corp.
'With the remaining debt, I would expect a lower recovery rate,' Mr Wang said. 'On the other hand, with equity assets the recovery rate can be much higher because some assets after restructuring will be much better.'
Mr Wang also said that in looking at the cash-recovery rate, most analysts neglected to factor in the cost of overhead for items such as due diligence conducted by lawyers.
For Cinda, this equalled 6 per cent of cash recovered - a significant cost of asset disposals.
In 1999, the Ministry of Finance transferred 1.4 trillion yuan in bad debt from the Big Four state banks to the four AMCs.