Chinese Banks Are Selling Defaulted Debt To Foreign Investors
Economic growth in China was fueled by a surge in debt lending within the national economy. However, a myriad of factors including an ongoing trade war with the U.S. has resulted in an inability for Chinese borrowers to refinance their debt and thus default on their loans.
Chinese banks have an increasing amount of shaky debt on their hands and are now selling that debt at deep discounts in order to gain the capital needed to jump start the economy. Foreign investors are taking advantage of this opportunity.
Defaulted debt is being sold at a range of 30-60 cents on the dollar. Foreign investors have several ways to make money off of this defaulted debt. Typically, defaulted debt is tied to property. Investors can settle the discounted loan and then resell the property at a profit. Additionally, this discounted debt could also be resold at a profit.
The way the process currently works, Chinese banks sell this defaulted debt to asset-managers who then sell it to foreign investors. Foreign investors are working to get the licensing to become asset-managers themselves, forgoing the need for a middleman.