China's repackaging of toxic loans into asset-backed securities, or bonds, is likely to cause problems in the future, despite the precedent set in 2006-2008 that saw yields of 32%. While official NPLs are at 1.7%, many estimate the real figure is well into the double digits. At that time, assets were recovered during a boom, fueled by credit, and investors were paid within two years. However, such results are unlikely to be seen in the current slower growth environment. In addition, oversupply is pushing these bond prices down, and purchase by potential buyers, whether insurers or banks, pose problems for other asset classes and keep bad debts within the banking system. The Chinese government has been trying to boost economic growth, but it faces challenges from slowing domestic demand as well as an increasingly competitive global economy.
China's repackaging of toxic loans into asset-backed securities, or bonds, is likely to cause problems in the future, despite the precedent set in 2006-2008 that saw yields of 32%. At that time, assets were recovered during a boom, fueled by credit, and investors were paid within two years. However, such results are unlikely to be seen in the current slower growth environment. In addition, oversupply is pushing these bond prices down, and purchase by potential buyers, whether insurers or banks, pose problems for other asset classes and keep bad debts within the banking system. The Chinese government has been trying to boost economic growth, but it faces challenges from slowing domestic demand as well as an increasingly competitive global economy.