A new "bad debt bank" has been created from an existing state-owned assets management firm in the southwestern municipality of Chongqing to tackle bad debts and other questionable assets from local companies.
The new firm, Chongqing Yukang Assets Management Company Ltd., will inherit the assets and debt restructuring arm of the state-owned Chongqing Yufu Assets Management Group Co., Ltd., the company said over the weekend.
The new firm has registered capital of 5 billion yuan (around 750 million U.S. dollars) and has signed deals with 21 banks to secure a credit line of 160 billion yuan.
Yukang is the latest bad debt bank to be created by China's local governments in the past two years as the central government asks local governments to shoulder more responsibility in addressing rising bad debts stemming from debt-fueled economic expansion in the wake of the global financial crisis.
After the spin-off, Yufu will become a state-owned equity investment firm, while the newly founded Yukang will dispose of bad debts and other assets from distressed firms and zombie firms and participate in restructuring of state-owned firms in the city.
The central government has made deleveraging one of the priorities for its supply-side structural reform package, which aims to shift growth patterns away from inefficient investment. Such investment has led to overcapacity in sectors in which companies are finding it difficult to generate enough revenue to pay back bank loans.
Official data showed that the non-performing loan ratio at Chinese banks had risen to 1.67 percent at the end of 2015, according to official data.
