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Demonstrators held banners during a protest over the freezing of deposits by rural-based banks, outside the Zhengzhou branch of the People’s Bank of China on July 10, 2022 in the Henan provincial capital, in this screengrab taken from video obtained by Reuters.

China deploys bad-loans expert to clean up Henan’s festering banking and property mess

  • Henan Asset Management Corporation (AMC) appears to be one of the first local AMCs to help tackle difficulties of property developers in the current round of crisis
  • A proposed rescue fund is expected to focus on ensuring delivery of properties, analyst says

Henan’s local authorities assigned a bad-loans manager and a state-owned real estate developer to clean up the province’s property mess, taking drastic action to contain a crisis ahead of China’s twice-a-decade leadership conclave.

A working team set up by Henan Asset Management Company and Zhengzhou Real Estate Group will help cash-starved developers to work out their funding woes, according to a report posted on the asset management firm’s website. The team will also aim to revive stalled projects, sell assets and restructure businesses to ensure the completion and smooth delivery of homes to contracted buyers, the report added.

Henan AMC is 40-per cent owned by Henan Investment Corporation, the provincial investment platform in central China. Its involvement underscores how local authorities are responding to Premier Li Keqiang’s instructions to fix the simmering banking and property crisis that is spreading throughout the country.

Henan’s provincial capital Zhengzhou is ground zero in the mess, where a banking scam by local fraudsters has combined with a mortgage boycott by disgruntled homebuyers. The scam has run up a tally of 40 billion yuan (US$6 billion) in missing bank deposits and a rare protest by nearly 1,000 depositors. Henan, the home province of China Evergrande Group’s founder Xu Jiayin, also had more unfinished residential projects than anywhere else in China, according to mainland Chinese media.

An unfinished residential building is pictured through a construction site gate at Evergrande Oasis, a housing complex developed by China Evergrande Group, in the Henan provincial city of Luoyang, near Zhengzhou, on September 16, 2021. Photo: Reuters

Henan AMC’s involvement mirrors the assignment of bad-debt managers at the national level to help China’s largest banks work out the non-performing loans in the property sector. Great Wall AMC is already cleaning up bad debt on the books of the Agricultural Bank of China, while China Orient AMC is working with Bank of China.

More provinces have stepped up. Gortune Investment in southern China’s economic powerhouse Guangdong province signed an agreement in April with the bond defaulter Fantasia Holdings Group and its Colour Life Services Group unit to restructure their debt. Gortune is an investment led by the Guangdong provincial government.

An estimated 1,000 protesters held up signs during a protest at the provincial branch of the People’s Bank of China (PBOC) in Zhengzhou on July 10, 2022, in this screengrab from video obtained by Reuters. Photo: Reuters

“More local [AMCs] may follow suit” in the footsteps of Henan AMC in helping tackle the crisis, said Zhu Yiming, the director of corporate research at China Real Estate Information Corporation, an industry consultant. “The pressure is huge on Henan to ensure the delivery of the houses, so the collaboration shows the determination of local authorities to solve the problem.”

The bad debt managers had issued bonds to finance the mergers and acquisitions of distressed property projects, together with China Merchants Bank, Industrial Bank, Shanghai Pudong Development Bank, Bank of Communications, China Guangfa Bank and Ping An Bank.

Still, the AMCs face an uphill challenge in cleaning up China’s property mess. Of the mass revolt by mortgage borrowers to pay their loans – affecting more than 280 projects in 86 Chinese cities – over grievances from shoddy quality to non-completion, mostly in Henan province.

Childhood dreams fuelled a debt binge that is taken Evergrande to the brink

Great Wall AMC has failed for the second time to announce its 2021 financial results, while concerns about the collective exposure of Chinese banks to the mortgage revolt have led to a sell-off in banks’ shares.

“The previous funds for helping developers were for resolving debt risks, while the one by Henan is likely to focus on ensuring housing delivery,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute. “When it comes to capital resources to resume construction, the local authorities and banks face pressure, so the fund solves the core problem.”