In Depth: China bad-debt managers’ bet on bank stocks could backfire

A NEW player has emerged in the boardrooms of China’s major banks: the “Big Four” state-owned asset management companies (AMCs) created to clean up the bad debts of four state-owned commercial lenders. The balance sheets of the “Big Four” are now glowing with profits — thanks not to their core task, but to a surge in bank stocks.

On Sept 30, Shanghai Pudong Development Bank (SPD Bank) disclosed that China Orient Asset Management had increased its stake in the bank to 3.44 per cent, becoming its fifth-largest shareholder, and nominated one of its own executives as a director. With this, the “Big Four” AMCs, also known as “bad banks” — including China Citic Financial Asset Management, China Cinda Asset Management and China Great Wall Asset Management — have become major shareholders in some of the country’s biggest commercial banks.

The strategy has paid off handsomely, at least on paper. Battered by a prolonged real estate crisis that has decimated the value of their traditional distressed property holdings, the quartet’s profits have swelled as rising valuations of bank holdings and a favourable accounting treatment — known as the equity method — allow them to record one-time gains. Citic Financial’s 2024 report showed that nearly three-quarters of its revenue mainly came from equity-method gains on its long-term equity holdings — bank stocks being a major contributor.