SHANGHAI: China’s banking and insurance regulator has issued an urgent notice to check risks of provincial-level debt clearers targeting fake deals to help banks massage their books, three sources told Reuters on Monday.

China’s provincial governments have rushed to set up asset management companies (AMCs) in recent months after Beijing relaxed rules to allow each province to set up two local AMCs to handle rising bad debt nationwide.

But the bad debt market is still dominated by the “Big Four” AMCs – Huarong, Cinda, Great Wall and Orient, set up in 1999 to clear up bad loans at state-owned banks.

The regulator will conduct “special investigations” into business activities of local AMCs to find out the cause of risks and measures to deal with risk, according to the sources.

Local AMCs were required to report their operations of 2017 and the first quarter of this year, including their disposal of non-performing assets and debt restructuring, the sources said.

The regulator will focus on possible falsified bad-loan dealings between banks and AMCs to “whitewash” their financial statements, they said.

One source said the regulator was drafting guidelines on AMCs to regulate their businesses and close possible loopholes.

The banking and insurance regulator has yet to respond to Reuters’ request for comment.

Published in Dawn, April 24th, 2018