China to Merge Three Debt Ridden Assets into one Entity

China intends to merge three of the country's largest bad debt managers into the sovereign wealth fund China Investment Corp (CIC), according to state-run Xinhua Finance News, as part of a financial institution reform initiative. According to Xinhua Finance News, three asset management companies (AMCs) - China Cinda Asset Management, China Orient Asset Management, and China Great Wall Asset Management - will be merged into CIC.

The Ministry of Finance is the largest shareholder in the three AMCs. CIC and China Cinda did not immediately respond to Reuters' requests for comment. Calls to Orient Asset Management and Great Wall were unanswered. The move aligns with the government's commitment to separating its roles as regulator and shareholder in state-owned financial institutions.

With lacklustre economic growth, regulators are curbing risk in the nation's $63 trillion financial industry amid mounting local government debt and crisis in the real estate sector.

In 1999, China established four asset management companies (AMCs) to help manage bad loans from its four largest state banks, which were on the verge of insolvency. However, the distressed asset managers went beyond their original mandate and began to pose a risk to the financial system.

The government established CIC in 2007 to diversify foreign exchange holdings and maximise returns, according to its website. It has a registered capital of $200 billion. The merger excluded China Huarong, which was renamed China CITIC Financial Asset Management last week. In an overhaul of the troubled asset manager, state-owned conglomerate CITIC Group acquired it beginning in 2021.