The Ministry of Finance of the PRC (MOF) issued the revised Measures for the Administration of Asset Disposal by Financial Asset Management Companies  on July 9, 2008. The Revised Measures replace their predecessor issued in 2004 (the Old Measures). Unlike the Old Measures, the Revised Measures prepare asset management companies (AMCs) to play by market rules, maximize the gains in asset disposal, and guard against moral hazards. The Revised Measures apply to the four state-owned AMCs in China established by the State Council.  

The Revised Measures uses the term “asset disposal” to refer to the AMCs’ lawful liquidation of the non-performing loans (NPLs) that they have purchased. Like the Old Measures, the Revised Measures require that each AMC and its branches set up special divisions for examining and approving asset disposal plans (Examining Division). The AMCs may only dispose of assets if an asset disposal plan passes the Examination Division’s scrutiny, or if a court order or arbitration award regarding the disposal of the asset takes effect.  

The Revised Measures specify that the AMCs must transfer the assets through a public bidding process, which may include, but is not limited to, tendering and bidding, auction, public invitations to bid, and public inquiry. In contrast, the Old Measures required the AMCs to transfer the NPLs through tendering and bidding, and did not provide that the process must be open to the public.  

The Revised Measures provide that the AMCs may not transfer any assets to non-state-owned parties by agreement without having first gone through a public bidding process. When an AMC offers any equity of a state-invested company for sale, it must send prior written notice to the stateinvested company and its investors or to the state-owned asset management departments. Except in limited situations, the transfer price may not be lower than the value calculated by a valid asset evaluation when an AMC transfers the equity interest of a non-listed company.  

According to the Revised Measures, a branch of an AMC may review and approve asset disposal plans within its authority, but must seek the branch parent’s approval when the disposal exceeds the branch’s authority. The Revised Measures also set forth procedural rules for an AMC’s Examining Division, including the quorum requirements for the meetings of the Examining Divisions.  

The legal representatives of the AMCs and their branches may not serve on the Examining Division, but they may veto the Examining Division’s approval or rejection of asset disposal plans . Moreover, the assets transferee (trustee), people who are lineally related to the party and whose assets are disposed, or the commissioned assets evaluation institution shall be excused from attending Examining Division meetings.  

AMCs can dispose assets by debt reclaim, lease, transfer, restructuring, trust, debt-to-equity swap, and securitization. However, the AMCs may only transfer assets to the government; investors of enterprises that own the assets to be disposed; and the institutions and AMCs designated by the investors under certain circumstances, including situations in which the debtor or guarantor is a state authority or the disposal concerns national defense and military industries. AMCs may not transfer assets to employees of the government, financial supervision institutions, or government judicial institutions, nor may they transfer assets to other AMCs, intermediaries, or other connected parties.  

Like the Old Measures, the Revised Measures allow the AMCs to conduct asset reconstruction and disposal through the absorption of foreign funds, in compliance with relevant laws. In particular, the AMCs should focus on introducing more advanced skills and management experience from foreign investors.  

In 1999, MOF set up four AMCs in China, which are commonly known as Huarong, Great Wall, Dongfang, and Cinda, one for each of the wholly state-owned commercial banks (the Big Four). The purpose of these AMCs was to acquire the Big Four’s NPLs at book value to lower the banks’ historically high NPL ratios.  

In recent years, with the disposal of policy-related NPLs drawing to an end, the AMCs have been exploring avenues for their transformation to market-oriented entities, including the possibility of becoming financial holding companies. In July 2007, the National Development and Reform Commission declared that the government will promote the transformation of the AMCs.