Chinese authorities have approved the establishment of a national asset management company to deal with the increasingly growing pool of non-performing loans.

Beijing-based Jiantou Citic Asset Management was approved to become an asset management company, according to a statement by local regulator China Banking and Insurance Regulatory Commission (CBIRC). The firm was originally established in 2005 to take over some of the assets of Huaxia, then one of the largest brokerages, which faced tumultuous times due to overexpansion. Following its transition to becoming an asset manager, Jiantou Citic Asset Management will be renamed to China Galaxy Asset Management.

China Galaxy marks the establishment of the fifth national asset manager. In 1999, the original four –  China Great Wall, China Orient, China Huarong and China Cinda – were set up to buy, manage and sell off non-performing loans (NPL) from the big four state-owned commercial banks. Though no new national asset managers were formed in between, more than 53 most state-owned local asset managers were formed for the same purposes of managing NPLs with a focus on banks in their own provinces.

Growing NPLs

An ongoing pandemic threatens to slash growth across the globe and China is expected to take a major hit. One Goldman Sachs estimate places first quarter GDP in the country at -9 percent.  

And this will further exacerbate the already accelerating pool of NPLs – the bad loan ratio grew 0.05 percentage points as of February-end to 2.08 percent, totaling 3.3 trillion yuan ($470 billion), according to CBIRC data. The regulator has an additional classification that focuses on potential NPLs which totaled 5.8 trillion yuan ($830 billion).

In addition to a much larger market, China Galaxy enters a markedly different NPL market that includes foreign competition. Last month, Oaktree Capital Management reportedly completed registration for a license and is expected to become the world’s first foreign NPL asset manager in the country, benefiting from a surprise inclusion in the phase one U.S.-China trade deal.