The Operation and Developing Trends of China’s Financial Assets Management Companies

With the development of the world economic situation and the acceleration of international financial integration process, the international competition of financial markets become increasingly fierce, and it needs that every countries treat the integrative challenge with the powerful economic strength and the competitive advantage. However, the quality of financial assets is the important symbol to measure one country’s economic strength and competitive advantage. Its focus is on the huge non-performing banking assets. It not only affected the stability of the banking system, but also to the varying degree weakened the banking support to economic development. At present, many countries in the world were plagued by the non-performing assets, and China was no exception.After Asian financial crisis broke out in 1997, the government of China has strongly realized the harm of non-performing assets, and has been aware of the close relation between the firm banking operation and the national economic security. Practice has proved that the establishment of Assets Management Companies (AMCs) still is a more effective means. Based on these, the CPC Central Committee and the State Council in April 1999 to October 1999 period have set up the four Assets Management Companies: Xinda、Huarong、the Great Wall and the Oriental, and in 2000 accomplished the work that nearly 1.4 trillions non-performing assets of the four major state-owned commercial banks were firstly striped off, furthermore, they have started to enter the substantive operating phase of the management and disposal of non-performing assets. The asset disposal deeply developed and the non-performing assets scale gradually declined, but the following question is: China AMC projects have shrunk gradually. After the disposal of non-performing asset, AMC is dismissed, closed or in transition? How would china AMCs’develop in future? These problems become a hot topic in theory field and the business community. In February 24. 2004, the State Council approved the Request On The Reform and Development of Asset Management Companies which is the Finance Ministry reported, made sure that the AMCs’establish the goal examination responsibility system of non-performing assets, and determined the AMCs’development direction to the commercialization transition. In March 2006, the third plenum of the 16th CPC in“CPC Central Committee decision on improving the socialist market economic system”clearly put forward to further Improve the Operating Mechanism of Asset Management Companies in order to establish the foundation of AMCs’future development. By the end of 2006, china AMCs have basically completed the task of dealing with policy non-performing assets. However, in fact, there are still institutions, the operating mechanism, means of disposal, regulatory system, and other problems. In future, the develop running and the way choose will make a great effect to our non-performing assets market environment, also have very important significance on the China’s macro-economic regulation and control and state-owned enterprises reforming. While the author sees the important significance of AMCs’operation and development question research in the light of his own work experience with AMC in several years, he attempts to estimate China AMCs’operating performance in seven years, and on the basis of analyzing on the AMCs’development factors, some views on the China AMCs’operation and development were put forward in this paper.This paper applies the incomplete information theory and agency theory of industry economics and financial innovation theory. First of all, from the background of China AMCs’establishment, it analyses the development history and operational practice of China AMCs, summarizes China AMCs’operational practice and achievement, and apply DEA to make empirical analysis about its operating performance. Secondly, this article carries out a detailed analysis that China AMCs’operational development face with the important problems and the constrained factors. On these basis, with the experiences and lessons from operation and development of the developed countries、emerging market economic countries and the state assets management corporation which is of the economic transformation, the future overall development direction and model of China AMCs are discussed in-depth, furthermore, the text advances the relevant security measures.The structure of this thesis is as following:Chapter 1 IntroductionChina’s big four state-owned commercial banks, in support of the development of the national economy, have accumulated the large amount non-performing assets. In April 1999, there have one after the other established the great four asset management companies: Xinda, Huarong, the Great Wall and the Oriental. Not long after its establishment, it becomes the financial academics and even the focus of the entire economical academics. This chapter mainly introduces and analysis the background, the research goal and the significance of the selection, then presented the main thought, the research methods and the main possible innovation of paper research.Chapter 2 The Developing Theory of the AMCThis chapter will firstly use the finance intermediary theory to analysis the inevitability of the AMC produces, elaborate and study the principles and the ways of the AMCs’non-performing assets purchase and management. In this foundation, it also makes use of the game theory to analyze the game relations of the AMC in the non-performing disposition and the debt enterprise, and from the evolution model which the AMC involves before and after, to further analyze and point out the existence of the AMC in the switcher economy. Then it combines with the finance innovation theory to present that China AMCs should positively carry on the system innovation and the method innovation, and open up a development path which China’s AMC properly operate.Chapter 3 The International Comparison and Experience Reference of the AMC Operation and Development PatternThe chapter bases on the development practice of the foreign asset management companies (AMCs) to differentiate under the different economic environment the AMCs movement and the development pattern, to introduce systematically AMC establishment background, the operation pattern, the non-performing assets disposition way and the result which is in the developed country like US, Japan, Sweden and so on, the emerging market economical country like South Korea, Thailand, Malaysia and so on, as well as the economical switcher country like Hungary, Poland and so on , and to generalize the further development. Through the compare, this chapter sums up the foreign AMCs development experience, and draws the conclusion that the AMCs establishment need the special policy and law support with the success movement; the AMCs development need to be clear management goal, reasonable motivation mechanism, and wholesome governance structure; the AMCs need non-performing assets countermeasure which conforms to the objective reality and actual condition of the country. In addition, there are the close correlations between the AMCs withdrawal or reforming and the factors as the organization localization, property characteristic, and market requirement.Chapter 4 The Developing process and Operation Evaluation of China’s AMCsThis chapter greatly researches the establishment background of the AMCs which specially deal with the bank non-performing assets, the characteristic and the function localization, carries on the review to the China’s AMCs production and the service development evolution course, carries on the comparison to the Chinese AMC service development, and summarizes the achievement which the Chinese AMC development has obtained. And it applies the data envelope analysis method (DEA) to measure to the China AMCs’non-performing asset disposition efficiency. Through the empirical analysis, it draws the conclusion that the China’s non-performing assets overall disposition efficiency is not very high; From looking at the disposition speed of the non-performing assets, the speed of the Great Wall AMC is fastest; From looking at the cash returns-ratio of the non-performing assets, the Xinda is highest. After considering the intelligence of the various AMCs’ non-performing assets, the author think that the annual mean handling efficiency of the Xinda AMC is highest, but the Great Wall is low. It reflects that each AMC disposition ability, to a certain extent, but also the huge difference between each one in purchasing the non-performing assets quality and some changes of national correlation policy. It propose that he China’s AMC disposition efficiency mainly influenced by non-performing assets loan way, the loan capital, the handling way of the AMCs’non-performing assets, the handling environmental factor and the debt enterprise own factor.Chapter 5 The Problems and the Restriction Factors in the Development of China’s AMCThe China’s AMC get the tremendous achievements in dealing with the non-performing assets,but also there exists a few problems. How to manage the difficulties and contradictions correctly in deal with non-performing assets is of great significance to further accelerate the process of the disposal of the non-performing assets, as well as China’s AMC transforms at the right time. This chapter focuses on the major issues of the China’s AMC operating in the development of, and analysis deeply the internal and external constraints factors, and concludes that the China’s AMC has a few problems and obstacles which it confronts with capital market, social security mechanism and the imperfect legal environment of external factors constraints, Also in the management and development exists the internal factors environment such as the imperfect of company management structure, restrict of business development, and the lack of professionals.Chapter 6 Developing Trend of China’s AMCThis chapter analysis the AMC’trend of development, which depend on the foreign AMC’trend of development, unifies our country government and China’s AMC, then we can conclude that China’s AMC should be last and reform. To be further more, the way of deal with non-performing assets should be deepen to meet the disposal of assets marketability tendency. And through AMC’commercialization reforming path analysis, focus in the six ideal proposed by theoretical circles, and deeps research of our country’actual, the author thinks that it will be much more serviceably and feasibly in reforming the AMC to modern investment banks in china.Chapter 7 Developing Pattern of China’s AMCThere is a real problem being not allowed to avoid on how to develop the AMC in future. With analyzed in the previous chapter, and research this chapter, we may find the development goal of China’s AMC. That is to say, the AMC should take non-performing assets disposition as the principal work, have the investment function and meet the modern enterprise system requirement, then take the market as guidance and the capital as the link, at last ,to be s strong market competitiveness joint stock system, comprehensive modern financial service enterprise. To play an intermediary role when the time is ripe, the China’s AMC must continue to insist on taking manages and handling with the non-performing assets as the principle work, carrying out securities, finance and leasing, trust, security, financial advisers, funds and other businesses in the assets markets, capital markets and available markets by choice. This paper points out that the best way the pattern of AMC’switch is set up the financial holding group with parent substance bank.Chapter 8 The Assurance measures of Development on China’s AMCWith the aid of the front chapter analysis’s foundation, the paper studies and discuss how to unify internal and external’s each kind of factor to promote and impel AMCs’future reform in our country, which mainly analyze from the AMCs’internal mechanism and external condition this two perspective. Then it promotes the assurance measures as follows: to speed up the reform of AMCs internal mechanism, to construct and consummation the AMCs management system, to establish the goal and function of AMCs, to definite the reasonable core business and to expand the scope of business, to promote the non-performing assets disposition way diversification, comprehensive, to establish the effective personnel to hire with the incentive mechanism, to consummates the AMCs’external environment construction, to strengthen the company destructing, the disposal of bad handling legislation, to speed up the cultivation of assets transaction and handling in market system, to make use of the foreign capital to participate in the disposal of bad assets, and to promote the construction of social credit system at last.