China’s NPL market: implications of the China-U.S. Trade Deal
Foreign investors continue to show strong interest in accessing China’s growing market for non-performing loans (NPLs). So much so that the recent China-U.S. Phase One Trade Deal includes a commitment by China to further open up its NPL market to U.S. firms. Specifically, China has agreed to allow U.S. financial services firms to apply for provincial (and eventually national) asset management company licenses, which would allow them to acquire NPL portfolios directly from Chinese banks. At the time of writing, the first such license has already been granted and more are expected in the future. In this article, we explore the significance and potential business opportunities presented by this aspect of the Phase One Trade Deal. However, to better understand its implications, we begin with a high-level overview of the existing macroeconomic and regulatory landscape surrounding China’s NPL market. For those who are already familiar with the background, please refer directly to Part II of this article further below.