One of China’s four major future investment sectors: non-performing asset disposal

For example, after the U.S. subprime mortgage crisis erupted in 2007, household debt was largely ‘forcibly’ cleared out according to market principles. The U.S. personal bankruptcy system is mature; many households defaulted on subprime mortgages and swiftly entered bankruptcy proceedings. Major financial institutions—including Freddie Mac, Fannie Mae, and Bear Stearns—received assistance from the Federal Reserve and the federal government to restructure their debts. Thus, in this round of debt resolution, households and small-to-medium enterprises (SMEs) primarily underwent bankruptcy liquidation, while large enterprises focused on debt restructuring. After Japan’s bubble crisis in 1990, numerous Japanese firms went bankrupt—but corporate debt resolution proceeded more slowly than in the U.S. Many Japanese companies suffered balance-sheet impairments; rather than disclosing asset write-downs, they opted to conceal losses, sell assets piecemeal, book artificial profits, and continue repaying loans—thereby avoiding bank reassessments of collateral and preventing a run on their finances that could trigger bankruptcy. At the time, widespread financial fraud occurred among Japanese corporations. Consequently, Japan’s asset-sale market became especially active during this debt-resolution cycle. Japanese home appliance and electronics firms sold off numerous end-product businesses—many acquired by Chinese companies. Haier acquired Sanyo’s white-goods business in Southeast Asia; Lenovo acquired NEC’s PC business; Changhong acquired Sanyo’s TV business; Hisense acquired Sharp’s Mexican factory and its TV brand licensing rights for the Americas (excluding Brazil); Skyworth acquired Toshiba’s lifestyle appliance business; and Midea acquired Toshiba’s home appliance business. Now consider China’s non-performing asset (NPA) disposal market. China is currently in an over-leveraged phase: local government debt stands at roughly RMB 100 trillion (RMB 40 trillion in explicit debt and over RMB 50 trillion in local government financing vehicle debt); household debt totals RMB 77 trillion (including RMB 38 trillion in mortgage debt); and non-financial corporate debt reaches RMB 150 trillion (excluding LGFV debt). Combined, these three categories exceed RMB 300 trillion—representing a massive latent market for NPA disposal. Among these, real estate debt constitutes the ‘main event’ in NPA disposal. Total interest-bearing real estate debt amounts to RMB 53 trillion; subtracting RMB 38 trillion in mortgages leaves approximately RMB 15 trillion in developer bank loans. Yet bank loans represent only the tip of the iceberg—far larger are delivery obligations and contractual liabilities. Currently, NPA-related business focuses primarily on developers facing liquidity distress—some real estate firms and related entities are literally waiting for funds to stay afloat. In this market, participants seek capital, partners, or projects: some financial institutions travel to the Middle East to attract sovereign wealth funds aiming to acquire undervalued domestic assets at bargain prices. Recently, Dalian Xinda Alliance Commercial Management Co., Ltd.—a core asset of Wanda Group—was jointly acquired by five investment institutions. As part of the transaction, Wanda Commercial Management Group secured RMB 60 billion in liquidity, but at the cost of ceding 60% equity. Among the five investors are Ares Management (U.S.-based), PAG (a pan-Asian private equity firm), CITIC Capital (a subsidiary of China’s state-owned CITIC Group), and two Middle Eastern sovereign wealth funds—the Abu Dhabi Investment Authority (ADIA), wholly owned by the UAE Ministry of Finance, and Mubadala Investment Company. It is foreseeable that, over the next decade, a substantial portion of China’s assets will change hands—many privately held assets will be acquired by well-capitalized Chinese or foreign investment consortia, thereby reshaping the ownership structure of wealth among China’s affluent class. However, the efficiency of China’s current round of debt resolution remains inadequate.

Wanda introduces new strategic investors; Dalian Xinda Alliance will receive approximately RMB 60 billion in investment from Middle Eastern capital and other investors—what information is worth noting?

CITIC truly has a penchant for acquisitions: whether it was Kaisa Group, Evergrande, or now Wanda, CITIC-affiliated shadow companies have consistently appeared as strategic investors behind restructuring efforts. On March 30, Dalian Wanda Commercial Management Group signed an investment agreement with PAG, CITIC Capital, Ares Management’s fund (Ares), Platinum Peony—a wholly owned subsidiary of ADIA—and Mubadala Investment Company, jointly investing approximately RMB 60 billion into Dalian Xinda Alliance Commercial Management Co., Ltd. The consortium collectively holds 60% equity, while Dalian Wanda Commercial Management retains 40%. With the signing of the RMB 60-billion strategic investment agreement, Wanda’s ‘betting crisis’—its high-stakes IPO-related wager—has finally been genuinely resolved. However, what likely follows is a sweeping overhaul of corporate governance and management. In fact, over recent years Wanda has been among the earliest property developers to initiate self-rescue measures—yet its bet on an IPO path never materialized, ultimately being rejected; its equity could not be converted into cash.

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