China to set up 5th debt-clearing agency

Shanghai, Aug 2 | Updated: Aug 3 2005, 05:30am hrs
China plans to set up the countrys fifth debt-clearing agency this month to help an existing quartet of agencies clear bad debt out of the banking system, sources familiar with the situation said.

The Huida Asset and Trustee Co. to be controlled ultimately by the central bank has been given the go-ahead to launch in August, an executive familiar with the situation told Reuters, confirming media reports.

Based on regulatory documents obtained by Reuters on Tuesday, Huida would be responsible mainly for disposing of the central banks bad debts and assets, similar to what the existing four debt-clearers are in the process of doing for the four largest state banks.

Chinas banking system is awash in at least $200 billion in bad debt, which is seen posing a risk to future economic stability.

Cinda Asset Management Co., one of the countrys four state debt clearers, will serve as Huidas controlling shareholder in name, according to a senior executive at Cinda. In fact, the central bank will be Huidas real boss, said the senior executive close to the situation, who declined to be identified.