China will set up an asset management company in its northeastern old industrial base to dispose of 140-billion-yuan worth of non-performing loans (NPL) of the local state-owned enterprises, a main obstacle in their revitalization.

Zhang Guobao, vice minister of the National Development and Reform Commission, said China would invite both domestic and international institutions to participate in the disposal of the debt.

"The reform of SOEs in northeastern Liaoning, Jilin and Heilongjiang provinces has been held back by a mountain of non-performing loans and tight new capital due to their low credit level," he said at a meeting to discuss the revitalization of the old industrial base.

Chinese official statistics show loans to local state companies account for half of all the NPLs at the three provinces' banks and rural credit cooperatives.

After decades of granting easy loans to loss-making state companies, local banks have become more cautious. At the end of September, about 810 billion yuan (103 billion U.S. dollars) are sitting idle on deposits in banks while the loans to state companies were declining.

Zhang said the new provincial-level asset management company in northeast China, will function similar to four other state asset management companies. It will take over bad debts from local banks and dispose them through various forms.

China in 1999 set up four state-run asset management companies -- Cinda, Orient, Great Wall and Huarong, to take over a mountain of NPLs from the country's big four state-owned commercial banks.

These companies auction off physical assets from debtors, transfer the creditors' rights, issue securities on the bad loans and find other ways to dispose of the NPLs.

The new asset management company is part of a program to revitalize the country's old industrial base, which gathers many large state manufacturing companies and has contributed greatly to China's industrial development during the period of the planned economy.

But these state companies have become money losers over the past two decades and have failed to adapt to the country's new economic environment. The companies were forced to layoff thousands of their workers.

The three-year-old revitalization initiative has accelerated economic development in northeastern provinces and has helped to create some new jobs.

The province of Liaoning, which once had the country's highest unemployment rate of around 7 percent, is expected to see that number dropping to 5 percent this year, according to official estimates.

Source: Xinhua