For Huarong, China’s biggest bad bank, it’s bailout or bust

If Chinese authorities opt not to save China Huarong Asset Management, it could trigger a chain reaction of financial risks

Huarong’s situation shows that there are many financial holes to be filled, and China still has a long way to go to minimise risks

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Auditors of China Huarong Asset Management are still trying to produce an annual report for the company, and it is creating uneasiness in the bond market. Photo: Reuters

Zhou Xin

Zhou Xin is Tech Editor of the Post, following stints as Political Economy Editor and Deputy China Editor.

Published: 7:45am, 20 Apr 2021Updated: 9:27am, 20 Apr 2021

China’s biggest bad bank, which was created in 1999 to take bad assets from the country’s biggest bank, has degenerated into a really bad bank after 22 years, and it may need to rescued by offloading its bad assets to another bad bank.

Lai Xiaomin, the former chairman of the bank in question – China Huarong Asset Management – was swiftly executed earlier this year after he was found to have taken 1.8 billion yuan (US$276 million) worth of bribes – a record in China’s finance history.

The bank’s auditors are still struggling to produce an annual report for 2020; and it is creating uneasiness and even panic in the bond market, undermining confidence in Chinese financial assets.

For Chinese authorities, this is indeed a dilemma. If the central government chooses to bail it out – whether through an injection of funds or by offloading its bad assets to another vehicle – it would set a bad example and run contrary to the “market-oriented” treatment of troubled financial institutions.

If Chinese authorities let the bank collapse, doing so could trigger a chain reaction of financial risks

But if Chinese authorities let the bank collapse, doing so could trigger a chain reaction of financial risks.