Only 20pc of the 22 billion yuan in 'very bad' assets cleared in the sale, which is being closely watched China Huarong Asset Management has sold only 4.4 billion yuan, or 20 per cent, of its 22 billion yuan in non-performing loans, a confirmation of the declining quality of the factories and other assets China is attempting to auction off to investors. Citicorp and JP Morgan were the winning bidders, participants said. Five of the loans received bids worth 2.78 billion yuan, but since they fell at least 50 per cent below the reserve price, participants said Huarong rejected them. Fourteen others were close enough to Huarong's reserve price to open the door for further negotiations, which could be wrapped up within weeks, bidders said. The auction of 22 loans by Huarong was being watched closely both inside and outside the country for indications of China's success in disposing of 1.6 trillion in non-performing loans through the four asset management companies. The fact that the bulk of the auction is still under negotiation means the outcome - so far poor - is far from certain. 'At the end of the day, they were selling very bad assets and if two-thirds are sold, that's pretty good given the quality,' one bidder said. 'My guess is by the time you get to next week 10 or 15 will be sold.' However, another investor involved in the auction said Huarong was facing pressure to complete the transaction before the end of the month. 'They tried to sell 22 and sold only three. That's a disaster for them,' he said. Ten foreign companies entered bids, in addition to one state-owned enterprise, which participants said was probably China National Offshore Oil Corp. Bidders included Goldman Sachs, Citicorp, UBS, Merrill Lynch and Morgan Stanley. Huarong's target price for the 22 lots, which represent 1,048 enterprises in 17 provinces, ranged from 5.7 per cent to 30.4 per cent of the face value of the loans. The five loans that were sold contained high quality assets in the east of the country, including Tianjin. The failed loans were mostly in the northeast, including Shenyang, Guiyang and Zhengzhou, and possibly Gansu, participants said. Bankers said the pool of loans in the industrial northeast included ageing state-owned companies whose future pension liabilities weighed heavily on the bids. In contrast, Tianjin firms tended to be younger, and their pensions were fully funded, reducing the prospects of an expensive payout down the road. In addition, Tianjin's legal system gives seniority to claims of debt holders over pension holders and on a par with unemployed workers. This is in contrast to the northeast, where the legal system tends to favour the disenfranchised employee over the investor. 'If there's a division between pensioner, employees and myself, I'm probably last,' said one potential bidder about the state-owned firms in the northeast. Another point that caused a split between the sold and unsold loans was that some either were unsecured, or were secured with industrial plants located outside cities, reducing the value of the underlying real estate. Bidders said the Beijing pool had no real estate backing the loans and the guarantees were related primarily to firms that were bankrupt or without saleable assets. Huarong chief executive Yang Kaisheng said he hoped to wrap up negotiations 'in 60 days'.