3China’s Financial Industry and Asset Management Companies

China’s banking sector, particularly the four wholly state-owned commercial banks (SOCBs), suffer from substantial numbers of non-performing loans (NPLs) and low levels of capital adequacy. To resolve these problems, the government adopted measures, including in 1998 the first cash injection of RMB 270 billion and in 1999 the establishment of the four asset management companies (AMCs) to transfer NPLs amounting to RMB 1.4 trillion ($169 billion). Despite these efforts, SOCBs have not succeeded in containing either the growth of NPLs or the deterioration of capital adequacy. In response, the government used RMB 372.5 billion ($45 billion) of foreign reserves to make the second cash injection into two better-performing SOCBs at the end of 2003. Because the government not only wrote off some of SOCBs ’ NPLs, but also began to stress that the SOCBs should resolve the NPL problems by themselves, the public started to worry about the future of AMCs. Considering the experience and resource of AMC, in the near future, the four AMCs are expected to be joined into one comprehensive AMC that will focus on resolving on a commercial basis o