Beijing mulls a new holding company for Huarong, bad-debt managers

Name: China’s economy expands record 18.3 per cent in the first quarter of 2021
Uploaded: 2021-06-01T05:41:03.000Z
Duration: 2 min 1 s
Description: China’s economy expands record 18.3 per cent in the first quarter of 2021

Some officials view the creation of a holding company as a step towards separating the government’s roles as a regulator and shareholder

Fears that Huarong might default have rattled bondholders since the end of March, when the company missed a deadline to report annual results

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Morning rush hour in Beijing. Some officials see the Huarong saga as an opportunity to revamp how China oversees all of its bad-debt managers. Photo: AFP

Bloomberg

Published: 1:41pm, 1 Jun 2021Updated: 8:56pm, 1 Jun 2021

China’s finance ministry is considering a proposal to transfer its shares in China Huarong Asset Management and three other bad-debt managers to a new holding company modelled after the one that owns the government’s stakes in state-run banks, according to a person familiar with the matter.

Policymakers are re-examining the proposal, which was first tabled three years ago, as part of discussions on how to deal with the financial risks posed by Huarong, said the person, who asked not to be identified discussing private information.

Some officials view the creation of a holding company as a step towards separating the government’s roles as a regulator and shareholder, streamlining oversight and instilling a more professional management culture at Huarong and its peers, the person said.

Authorities are also discussing whether to bring in more external investors, effectively reducing the finance ministry’s controlling stakes, the person said. Regulators are still awaiting guidance from senior Chinese leaders on the proposals and on how to resolve Huarong’s debt challenges, the person added.

It was unclear what impact, if any, the proposed changes would have on Beijing’s willingness to extend financial support to Huarong and its peers during times of stress. Even though the government owns stakes in major Chinese banks indirectly through a company called Central Huijin Investment, the firms are still considered by creditors and other counterparties to enjoy strong official backing.

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China’s economy expands record 18.3 per cent in the first quarter of 2021

Fears that Huarong might default have rattled bondholders since the end of March, when the company missed a deadline to report annual results. Any move to inflict losses on Huarong’s creditors would mark a significant – and potentially risky – step in President Xi Jinping’s campaign to reduce moral hazard in the world’s second-largest credit market. With nearly 1.6 trillion yuan (US$251 billion) of liabilities and a vast web of connections with other financial institutions, Huarong is among China’s most systemically important companies outside the country’s state-owned banks.