Foreign Capital in China’s Non-Performing Asset Market: Opportunities and Pathways

Co-author: Catherine Yan

Background

At the start of 2024, China’s financial regulators made it clear: foreign investors are welcome to participate in the country’s asset disposal market. With slowing economic growth and rising levels of non-performing assets (NPAs), international capital is being invited to play a bigger role alongside domestic players.

By mid of 2025, Chinese banks held CNY 3.4 trillion in non-performing loans. In 2024 alone, CNY 3.8 trillion worth of NPAs were disposed of – a record high in history. Clearly, the NPA disposal market remains both large and full of opportunity.

Competitive Landscape

China’s NPA management industry has 3 layers:

1. The “Big Four” AMCs: China Cinda, China Orient, China Great Wall, and China Huarong. Created in 1999, they dominate the market and have since evolved into full-service financial groups.
2. Local AMCs: Set-up by provincial governments starting from 2012, many of them with private capital injections, now totaling around 60 nationwide.
3. Unlicensed AMCs: These cannot buy NPAs directly from banks but are active in secondary market, often specializing in certain industries or assets recovery.

Market Entry Options for Foreign Investors

Buying NPAs Portfolios

The most straightforward entry is purchasing NPA portfolios directly from AMCs or banks via bidding / auction process at public exchanges. This can be done in RMB or foreign currencies. For example, Morgan Stanley’s consortium deal with Huarong in 2001 marked the first major foreign entry.

Using QFLP Funds

Qualified Foreign Limited Partnership (QFLP) funds allow foreign investors to convert foreign capital into CNY for private equity investments, including NPAs in certain pilot regions. Cities such as Beijing, Shenzhen and Shanghai have active QFLP programs.

As compared to buying NPAs portfolios via normal foreign direct investment process, the use of QFLP funds can achieve more simplified foreign exchange procedures, more flexibility in managing investment quotas and smoother fund flows.

Major foreign players from public reports include CarVal Investors and Oaktree Capital. They have both used or intended to use QFLP structures to build significant NPA portfolios in partnership with Chinese AMCs.

Takings Stakes in Chinese AMCs

The most long-term option is acquiring equity in Chinese AMCs themselves. In 2023, rules were relaxed to allow foreign non-financial institutions to invest, and even with certain conditions being fulfilled become controlling shareholders, in AMCs. In the meantime, requirement on total assets of foreign financial institutions acting as investors in AMCs was abolished as well.

1. At the local level, Hainan NWS Asset Management became the first Sino-foreign licensed joint venture AMC in 2019.
2. Private equity firms such as Warburg Pincus and Blackstone have also invested in unlicensed AMCs to build their presence in the sector.

Strategic Takeaways

• Test the waters by acquiring NPA portfolios through public exchanges.
• Deepen involvement with QFLP funds for more flexible and larger-scale participation.
• Commit long-term by taking equity stakes in AMCs, positioning for sustained market influence.

Challenges to Watch

• Local policies vary – what’s allowed in Beijing may not be in Shanghai or Shenzhen.
• Cross-border data rules apply when personal NPAs are involved, requiring careful compliance with cybersecurity and data protection regulations.