| In 1999, four asset management companies (AMCs) were established to take over non-performing loans (NPLs) from the four state-owned commercial banks. The AMCs are state-owned financial institutions with heavy administrative colour. The success of the AMCs depends on whether the AMCs can successfully dispose of NPLs according to market functions that maximize the value of the impaired assets and minimize fiscal costs. However, on the other hand, the success of transaction based on market function depends on the extent to which laws and relevant institutions support transactions so as to reduce the obstacles of transaction.The dissertation examines the legal barriers for transferring creditor's rights and share rights of AMCs. By studying the legal infrastructure and specific regulations, the paper analyses the obstacles to transferring creditor's rights.Through examining the legal infrastructure, which includes formal institutions, informal institutions and enforcement of institutions, the dissertation finds that the formal institutions in the regulation of mortgage, bankruptcy and transference of property have a lot of malfunctions such as numerous red tapes and fee requirements, which largely increase the transaction costs. Meanwhile, the informal institutions are also not free of malfunctions, which are reflected in the abominable environment of credit. The high lawsuit costs in combination with low enforcement rate provide a fertile bed for keeping transaction costs high as long as possible. In brief, the high transaction costs facilitates the formation of a negative credit protection environment in the general legal infrastructure in China, and it becomes the major impediment for transferring credits.After the AMCs took over NPLs from the big four banks, the Supreme People's Court issued judicial interpretation and the banks are immune to some regulations, such as the notification of transferring credit, the inhibition of transferring the principal creditor's rights guaranteed by mortgage of maximum amount, and the filing for transferring mortgage. The judicial interpretation ensured the effectiveness of the transference from banks; however, the AMCs are restrained by these rules when they transfer their creditor's rights. This implies that some of their creditor's rights shouldn't be transferred and some of the transference may involve high costs.According to the government's plan, there were a scheme of debt-equity swap between the AMCs and some stated-owned enterprises, and the success of the scheme depends on whether the AMCs can successfully transfer the share rights. However, due to the company law and financial constraints, it is almost impossible for these stated-owned enterprises to repurchase their own shares. Meanwhile, as AMCs are state-owned financial enterprises and their shares are state-owned shares, transfer of these shares are subject to provisions which are 'separately provided by the law and administrative rules and regulations', these constraints include approval by administrative institutions, requirements on transferring form, transferring place and transferring prices. Therefore, there are a great deals of problems for the AMCs to transfer the shares they hold, especially the shares of listed companies.Based on the above observations, the dissertation argues, although the legal institutions should be universal, definite and open so as to reduce the sophistication of the world and the transaction costs, legal institutions in China demonstrate characteristics of density, technicality, fragmentation and uncertainty, which further facilitate dysfunctional complexity and increase the compliance costs. In other words, legal system in China has departed from the original purpose of institutions and has increased transaction costs but not reduce transaction costs.The dissertation insists that loosening legal regulation, reducing government intervention and improving judicial environment are essential in China, and the most important issue is that the purpose of designi...
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