Introduction Of Foreign Participation In China's Non-performing Assets Disposal

With the rapid development, the state-owned commercial banks of China (the banks hereinafter) accumulated huge NPAs (Non-Performing Assets). By 2002, the NPAs in China reached RMB 4,139 billion totally, among them only the NPAs of the banks topped RMB 3,300 billion. So huge NPAs have forced the banks into bankruptcy,which will cause the corresponding financial market crisis. If the event comes true, the most of the national income will be destroyed and the social stability will be threaten severely as well.Up to now, there are two problems among the measures to avoid such risks: efficiency and moral risk. Because of the lack of the huge funds and efficient methods the NPAs disposal required, the efficiency is still questionable. The moral risk means that the persons who are responsible for the NPAs disposal take the negative attitude to the disposal for the risks being rebuked as the state-owned assets valuing down.There are many ways introducing foreign investment: establishing joint-ventures, debt or stock-holdings sales, mutual funds, outsourcing, trust, etc. Among them, the joint-venture will be the most efficient method to connect overseas investors and China NPAs market. Moreover, in he author's opinion, ABS (assets backed securitization) is not suitable to the case of the NPAs in particular for the lack of the stable cash flow.For the above reasons, the author stated that we should introduce the foreign investment into the NPAs disposal progress. This method will not only bring up the funds, experiences and techniques, but also help to dissolve the moral risks, and then break the paradox in the NPAs disposal progress.On the other hand, the actual desire of the foreign investors makes the method feasible. They are professional investors including the institutional investors and multi-national investment bankers mainly. The huge NPAs market size and rapid macro-economic development in China attract them into China.Furthermore, some necessary cooperation on the national policies, rules and investment environment are still required. Especially, we should take efforts to enhance the transparency of the policies, guarantee the investors' benefits as the creditors, and provide them with more information about the NPAs. Only when the efforts take effect, the purpose of introducing foreign investment into China's NPAs disposal can be realized.