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Business Times
6 hours ago
- Business
- Business Times
Why China's banks are hunting for fortunes stashed abroad
BEHIND the gates of an opulent mansion in Vancouver, San Francisco, or Sydney, a wealthy Chinese individual lives a life of quiet opulence, his wealth secured in offshore accounts and real estate. Meanwhile, back in China, his business empire has collapsed and has defaulted on its debts, leaving creditors nursing heavy losses as they try to recover their capital. In the past, Chinese banks and other financial institutions would write off the debts owed by failed companies and their wealthy founders who absconded overseas. That's because they lacked the financial means or the ability to track down the individuals and the assets they stashed away in secretive investments abroad. But that's changing as a growing number of large debtors flee overseas and take their assets with them. Many financial institutions, faced with growing mountains of bad debt, are fighting to recover as much as they can, even if that means embarking on an international hunt for hidden assets. Cross-border debt collection is gaining momentum, helped by the willingness of external agencies to take on such work on a no-win, no-fee basis. The pressure on China's financial system and the balance sheets of lenders is immense. In 2024 alone, China's financial sector disposed of a record 3.8 trillion yuan (S$679 billion) in non-performing assets, 27 per cent more than the previous year, according to data from the National Financial Regulatory Administration. The market for soured debt is booming, with transfers of non-performing loans on the country's official exchange platform surging around 80 per cent last year. The bad debt crisis stems partly from the multi-year slump in the property sector, which has had a domino effect on industries up and down the supply chain, from construction to finance. Banks, which had fuelled the boom not only with traditional on-balance-sheet loans but also through off-balance-sheet wealth management products, are now seeing their financial strength and asset quality weaken. Recovering some of those bad debts is better than nothing. 'China has emphasised defusing real-estate risks for years, but financial institutions still face challenges such as declining asset values and prolonged disposal cycles,' said Du Guodong, a partner at Beijing-based Hylands Law Firm, which co-authored a report on the topic that was published in July. 'When the value of collateral, such as land or buildings under construction, is insufficient to cover the principal and interest on the debt, and the debtor's domestic assets have been depleted with key assets hidden overseas, domestic collection efforts become futile. This is what creates the need for global recovery.' BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Evading justice In the bankruptcy restructuring of HNA Group, a once high-flying airlines-to-property conglomerate, the recovery rate for ordinary creditors of its core aviation unit was projected to be a mere 4.45 per cent and for one of its subsidiaries, the rate was zero, according to the company's restructuring plan. A 2023 analysis by Deloitte Advisory (Hong Kong) estimated recovery rates of just 2 to 9.5 per cent for offshore creditors of China Evergrande Group, once the country's biggest property developer that collapsed under more than US$300 billion of debt and is now being liquidated. Financial creditors in China face twin challenges when trying to recover bad debts – the lack of assets held by debtors inside the country that can be seized and sold, and intense competition among creditors for a share of what's left, which results in low recovery rates, according to Du's report – The 2025 Report on International Asset Recovery for PRC Financial Creditors released on Jul 4. Debtors often secretly transfer their wealth overseas, hiding assets abroad and exploiting cross-border legal barriers to evade repayment obligations, according to the report, published jointly by Hylands Law Firm, Omni Bridgeway, an international legal finance and risk management service provider, and Global Yudu, a Hong Kong-based company that offers cross-border debt collection and offshore asset recovery services. The phenomenon of business owners transferring assets offshore before their companies' collapse is a well-worn path. For years, a cottage industry of middlemen in China specialised in helping entrepreneurs move wealth out of the country through unofficial channels such as underground banks, cryptocurrency transactions, and networks of overseas shell corporations. 'In some Chinese private companies, you have a classic 'poor temple, rich monk' situation', said one veteran bad-loan manager at a major Chinese bank. 'The company has been completely hollowed out, but the actual controller is very rich, and he long ago moved his own assets, and sometimes even the loan proceeds, overseas. When the company collapses, he claims to be a pauper.' The most infamous recent case involves Hui Ka Yan, founder of China Evergrande Group, whose family assets are now the subject of a worldwide search by liquidators appointed in Hong Kong. However, pursuing personal assets to repay debts is not always appropriate because many companies take on debt that is not guaranteed by their actual controllers, Du said, which means those individuals are not directly liable for the debt owed. Global asset hunt Chinese companies typically hold relatively few assets overseas, and they have limited liability legal status, which means that if they collapse, they likely have a relatively small amount of executable assets, property, or resources that can be legally seized and sold to repay debts through court orders or debt recovery processes. That does not make it cost-effective for creditors to pursue repayment overseas, Du told Caixin. However, in China, many corporate financing deals require the company's founder or actual controller to provide a personal guarantee, which means creditors can go after that individual's global personal assets, including luxury homes and yachts, bank accounts, and investments. In some jurisdictions, creditors can even claim family assets. Chinese court judgments against debtors are enforceable in at least 47 countries and regions, according to the asset recovery report, covering destinations that are popular among high-net-worth individuals, such as the US and Canada. Among those, 35 jurisdictions have signed bilateral judicial assistance treaties with China that explicitly support the recognition and enforcement of Chinese judgments. Twelve countries have proactively enforced Chinese judgments based on their domestic laws, providing a solid legal foundation for global debt recovery. So as long as basic procedural fairness requirements are met, creditors can apply for compulsory enforcement orders in these jurisdictions, the report said. That said, legal proceedings to recover money overseas are complicated, often time-consuming, and extremely costly. Even before they begin their overseas hunt for assets, creditors face obstacles. In many cases, debtors flee and relocate overseas or deliberately evade litigation, making it almost impossible for Chinese courts dealing with domestic lawsuits or arbitration to effectively serve summonses or ensure that debtors are substantively aware of court proceedings, Luo Ting, a lawyer at Hylands Law Firm, told Caixin. That makes it difficult to prove that the debtor was substantively aware of the litigation, which may lead foreign courts, when reviewing Chinese judgments or arbitration awards, to conclude that the debtor's right to respond was not adequately protected and to refuse recognition and enforcement, Luo said. 'Australia has, in fact, declined to recognise and enforce Chinese judgments in multiple cases on these grounds,' she said. No free lunch Another issue is the cost of collecting debts overseas, which could run to millions of US dollars, according to sources interviewed by Caixin. Cross-border debt recovery requires a high level of professional expertise, the report said. The process requires not only a comprehensive understanding of legal proceedings in different countries, but also good knowledge of capital market operations and cryptocurrency trading in order to investigate debtors' often sophisticated cross-border asset transfers, it noted. 'The first concern for creditors is whether they even have enough money to start global recovery efforts,' one legal expert told Caixin. 'The second is, if they spend so much and end up recovering nothing or only a small amount, then they still lose money.' In one case, Chinese creditors spent nearly US$20 million to pursue debtors who fled overseas, which shows that the costs can be significant and should not be underestimated, the source said. Some industry insiders suggest that instructing a third-party debt collection agency might help. Omni Bridgeway, which is seeking to tap into the Chinese market, says it will pay all the recovery costs in advance. If successful, both parties share the recovered funds; if unsuccessful, it absorbs the loss. But such a service does not come cheap. Agencies such as Omni Bridgeway usually demand a high share of the assets they manage to secure, ranging from 35 to 55 per cent, reflecting the high risks involved in trying to track and recover assets that could span several countries, the legal expert told Caixin. Chinese banks, accustomed to the lower contingency fees charged by domestic lawyers, often baulk at giving away such a large share, seeing fees of 20 to 30 per cent as more acceptable. Yet funders argue they are creating value from an asset the bank had essentially written off.
South China Morning Post
8 hours ago
- Business
- South China Morning Post
China seeks to bolster demand by subsidising interest costs on consumer loans
China has launched a year-long plan to offer interest subsidies for personal consumer loans as part of Beijing's broader efforts to unlock household spending power and shore up domestic demand. Individuals who take out consumer loans for purchases – including single transactions below 50,000 yuan (US$6,958) and higher amounts for purchases in key sectors such as cars and education – will have part of their interest costs covered by the government, according to the plan released on Tuesday by the Ministry of Finance, the People's Bank of China and the National Financial Regulatory Administration. The authorities said the plan aims to 'better leverage fiscal funds to support and guide consumption, lower the cost of consumer credit for households, and help unlock their spending potential'. The plan will subsidise one percentage point of the annual interest on loans, capped at half of the contracted loan interest rate. The central government will cover 90 per cent of the subsidy cost, with provincial governments responsible for the remaining 10 per cent. It will run from September 1 until the end of August next year, and the authorities said they might consider extending or expanding it after assessing its effectiveness. This new personal consumer loan subsidy targets the demand side, directly benefiting individual consumers Ministry of Finance official China's top leadership has made boosting consumption a top policy priority, with Beijing having already rolled out a 30-point policy package and allocated 300 billion yuan to a consumer goods trade‑in programme.
Business Times
11-07-2025
- Business
- Business Times
Chinese banks stumble on Beijing's consumer lending push
[BEIJING] Chinese banks are struggling to comply with new Beijing guidelines to boost consumer credit as they reel from a surge of defaults on personal loans and have a hard time finding households in good financial shape that want to borrow. Since March, financial regulators have issued multiple directives urging banks to offer more, and cheaper, loans to spur consumption, as part of broader efforts to counter the impact of the trade war with the United States. This prompted banks to market personal loans at record low interest rates below 3 per cent initially, before raising them back amid concerns over shrinking profit margins. Loan managers and bank executives said that they are struggling to raise consumer lending, citing subdued demand, as well as concerns over an already rapidly growing pile of bad household debt and uncertainty over their clients' incomes. Recent wage cuts in the financial industry, manufacturing and the state sector have further dented households' financial health while higher US tariffs are fuelling concerns over jobs and income stability. 'It's very difficult to find borrowers for consumer loans,' said a branch head at a state-owned bank, requesting anonymity due to the sensitivity of the topic. 'Banks are caught between meeting lending targets and controlling bad loans.' BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up 'If defaults rise, branch officers face penalties. Many loan officers borrow from each other's banks to meet lending quotas.' The People's Bank of China and the National Financial Regulatory Administration did not immediately respond to requests for comment. Consumer loans grew 6.1 per cent in the first quarter, slower than the 8.7 per cent in the same period of 2024 and the 11 per cent in January to March 2023, according to the central bank. Data for the second quarter is expected in the coming weeks. The overall non-performing loan (NPL) ratio of China's commercial banks was 1.51 per cent as at the end of March, remaining steady compared to 1.50 per cent at the end of 2024, official data showed. Smaller rural commercial banks posted a higher NPL ratio of 2.86 per cent in the first quarter compared to 1.22 per cent at major state banks. Official data does not disclose the NPL ratio of overall consumer loans, but the bank executives and loan managers told Reuters the defaults on personal lending have risen sharply this year. Bad loans pile up The banks' struggles bode ill for official efforts to boost lending to consumers, seen as a faster alternative to raising household incomes. The latter would require indebted local governments spend more on social welfare and civil servants pay, among other measures. Any debt-driven jolt to consumption is likely to prove 'transitory', said Lynn Song, chief Greater China economist at ING. 'Income growth-driven consumption would be strongly preferable in terms of achieving a more sustainable recovery,' Song said, adding that was a more difficult task for authorities. Economists are not concerned about absolute household debt levels, which are about 60 per cent of economic output in China, compared with about 70 per cent in the US and more than 90 per cent in South Korea. But they worry about how quickly NPLs in the consumer debt sector have been rising. In the first quarter of this year, Chinese banks put up 74.3 billion yuan (S$13 billion) of NPLs for sale, a 190.5 per cent increase from the same period of 2024, data from the Banking Credit Asset Registration and Transfer Center show. About 70 per cent of them were personal loans. 'We have a growing pile of bad loans. For many clients who can't repay, all we can do is negotiate extensions,' said a loan officer at a major state-owned bank. The officer said his bank prioritised writing off NPLs over issuing new loans. The Industrial Commercial Bank of China, the world's largest commercial bank by assets, said its consumer NPL ratio rose to 2.39 per cent at the end of 2024, from 1.34 per cent a year earlier. Smaller, regional lenders are faring much worse. Bohai Bank's consumer NPL ratio jumped to 12.37 per cent in 2024 from 4.44 per cent the previous year. Harbin Bank's rose to 5.51 per cent from 3.94 per cent. 'Clients are in poor operating conditions due to the tariffs war and unable to repay their loans,' said a regional bank manager. Another key challenge for banks is that consumers do not want to borrow. A central bank survey of 20,000 households showed that 61.4 per cent intend to boost savings, an increase of almost 20 percentage points from pre-pandemic levels. 'The fundamental issue is that income growth is slowing and households are anxious, so they are restraining their spending and borrowing,' said Christopher Beddor, deputy director of China research at Gavekal Dragonomics. 'It's not that they can't get a cheap loan.' REUTERS
New Straits Times
11-07-2025
- Business
- New Straits Times
Chinese banks stumble on Beijing's consumer lending push
BEIJING: Chinese banks are struggling to comply with new Beijing guidelines to boost consumer credit as they reel from a surge of defaults on personal loans and have a hard time finding households in good financial shape that want to borrow. Since March, financial regulators have issued multiple directives urging banks to offer more, and cheaper, loans to spur consumption, as part of broader efforts to counter the impact of the trade war with the United States. This prompted banks to market personal loans at record low interest rates below three per cent initially, before raising them back amid concerns over shrinking profit margins. Loan managers and bank executives told Reuters they are struggling to raise consumer lending, citing subdued demand, as well as concerns over an already rapidly growing pile of bad household debt and uncertainty over their clients' incomes. Recent wage cuts in the financial industry, manufacturing and the state sector have further dented households' financial health while higher US tariffs are fuelling concerns over jobs and income stability. ADVERTISING "It's very difficult to find borrowers for consumer loans," said a branch head at a state-owned bank, requesting anonymity due to the sensitivity of the topic. "Banks are caught between meeting lending targets and controlling bad loans." "If defaults rise, branch officers face penalties. Many loan officers borrow from each other's banks to meet lending quotas." The People's Bank of China and the National Financial Regulatory Administration did not immediately respond to requests for comment. Consumer loans grew 6.1 per cent in the first quarter, slower than the 8.7 per cent in the same period of 2024 and the 11 per cent in January–March 2023, according to the central bank. Data for the second quarter is expected in coming weeks. The overall NPL ratio of China's commercial banks was 1.51 per cent as of the end of March, remaining steady compared to 1.50 per cent at the end of 2024, official data showed. Smaller rural commercial banks posted a higher NPL ratio of 2.86 per cent in the first quarter compared to 1.22 per cent at major state banks. Official data does not disclose the NPL ratio of overall consumer loans, but the bank executives and loan managers told Reuters the defaults on personal lending have risen sharply this year. BAD LOANS PILE UP The banks' struggles bode ill for official efforts to boost lending to consumers, seen as a faster alternative to raising household incomes. The latter would require indebted local governments to spend more on social welfare and civil servants' pay, among other measures. Any debt-driven jolt to consumption is likely to prove "transitory", said Lynn Song, chief Greater China economist at ING. "Income growth-driven consumption would be strongly preferable in terms of achieving a more sustainable recovery," Song said, adding that was a more difficult task for authorities. Economists are not concerned about absolute household debt levels, which are about 60 per cent of economic output in China, compared with about 70 per cent in the US and more than 90 per cent in South Korea. But they worry about how quickly non-performing loans (NPLs) in the consumer debt sector have been rising. In the first quarter of this year, Chinese banks put up 74.27 billion yuan (US$10.34 billion) of NPLs for sale, a 190.5 per cent increase from the same period of 2024, data from the Banking Credit Asset Registration and Transfer Center show. About 70 per cent of them were personal loans. "We have a growing pile of bad loans. For many clients who can't repay, all we can do is negotiate extensions," said a loan officer at a major state-owned bank. The officer said his bank prioritised writing off NPLs over issuing new loans. The Industrial Commercial Bank of China, the world's largest commercial bank by assets, said its consumer NPL ratio rose to 2.39 per cent at the end of 2024, from 1.34 per cent a year earlier. Smaller, regional lenders are faring much worse. Bohai Bank's consumer NPL ratio jumped to 12.37 per cent in 2024 from 4.44 per cent the previous year. Harbin Bank's rose to 5.51 per cent from 3.94 per cent. "Clients are in poor operating conditions due to the tariffs war and unable to repay their loans," said a regional bank manager. Another key challenge for banks is that consumers do not want to borrow. A central bank survey of 20,000 households showed that 61.4 per cent intend to boost savings — an increase of almost 20 percentage points from pre-pandemic levels. "The fundamental issue is that income growth is slowing and households are anxious, so they are restraining their spending and borrowing," said Christopher Beddor, deputy director of China research at Gavekal Dragonomics.
Yahoo
11-06-2025
- Business
- Yahoo
China bans banks from luring customers with popular Labubu dolls
Chinese authorities have banned domestic banks from luring customers with gifts including the hugely popular Labubu dolls, amid fierce competition among lenders as interest rates and profit margins decline. The Zhejiang branch of China's financial regulator, the National Financial Regulatory Administration, has asked local banks to refrain from offering non-compliant perks to attract deposits, Bloomberg News reported. The guidance came after the Shenzhen-based Ping An Bank ran a promotion offering Pop Mart's Labubu dolls in several cities to new customers who deposit at least 50,000 yuan (£5,162) for three months. The fluffy dolls with a sharp-toothed grin first came on to the market in 2019 and are mostly sold in 'blind boxes'. They went viral after Lisa from the K-pop band BlackPink was photographed with one attached to her luxury handbag last year, followed by the singer Rihanna. The Labubu dolls are the creation of Kasing Lung, an artist born in Hong Kong and raised in the Netherlands. He was inspired by Nordic mythology when he created his 'Monsters' characters for a series of picture books in 2015, including Labubu. Ping An Bank's promotion offered new customers a choice between a Labubu 3.0 blind box and a gift package. However, the Chinese regulator wants to stop the practice of offering customers gifts, which can also include rice, small home appliances and online memberships, because it is concerned that this will increase costs at banks and hurt their profit margins. Banks' margins are at a record low. China's central bank cut benchmark interest rates last month for the first time since October in an attempt to shield the economy from the impact of Donald Trump's trade war. A few days later, the authorities lowered the ceilings on deposit rates to protect banks' profit margins and discourage savings. Ping An Bank's marketing campaign went viral on the Chinese social media platform Xiaohongshu, also known as RedNote, and drew strong interest from savers, but state media said it was 'not a long-term solution'. Labubu dolls have sold out on Chinese e-commerce sites and Pop Mart's official online channels, according to the news outlet Yicai, owned by the Shanghai Media group. Sign in to access your portfolio
