China under investigation for corruption in bad debt industry

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China under investigation for corruption in bad debt industry

China has placed a senior management executive of the China Great Wall Asset Management Co. under investigation on suspicion of corruption, the latest scandal hitting the country's distressed-asset management industry.

According to a statement by the Sichuan branch of the Chinese Communist Party's anti-corruption watchdog, the Central Commission for Discipline Inspection, Hu Xiaogang is being probed on suspicion of serious disciplinary and order violation.

China Great Wall is among the four major state-owned distressed money managers in China that also include China Changa Asset Management Co. and China Orient Asset Management Co. The investigations come amid increasing concerns among investors over the financial health of Huarong, whose former Chairman Lai Xiaomin was executed in January for crimes including bribery, and its peers.

Huarong has continued to repay its bonds and said it has no change in support from China's government. But its offshore and onshore bonds have come under pressure in a selloff that has spread to peers amid questions about government support for the industry. None of the four bad-loan managers has tapped into the offshore bond market since Huarong investors shocked by failing to publish its financial results at the end of March.

According to their latest financial statements and data compiled by Bloomberg, the bad-loan managers have combined liabilities of about 4.5 trillion yuan, including $49 billion of outstanding Dollar Bonds. The firms need to repay or refinance $4.9 billion of maturing dollar notes by year-end.

Lai is the most senior executive in China's bad debt industry to be probed after the death of Hu. The statement on Xu, noted by the branch of CCDI on its website, also identified him as a member of the Communist Party Committee and former vice president of China Orient Asset Management Co. Great Wall's website does not show him as a member of the firm's leadership.

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