China's bad banks: right about Huarong In China state-directed lending and bad loans go together like, well, the country's big four banks and their bad bank shadows. News that one such bad bank, Huarong, is in talks to sell a stake ahead of a planned listing next year will come as no surprise to those already expecting the float of rival Cinda later this year. After all, it would be nice to clear up the last loan mess before addressing the next one. China's so-called asset management companies have come a long way from their roots in the last crisis. But the likely listing of the better-known ones is a reminder of how China dealt with a big debt problem just as, pessimists argue, it prepares to face another. The four AMCs - Huarong, Cinda, China Great Wall and China Orient - were created in the late 1990s to buy the bad loans of ICBC, China Construction Bank, Agricultural Bank of China and Bank of China respectively. In total, they absorbed about Rmb1.4tn ($170bn) of bad debt at face value, or about 15 per cent of the banks" total assets, according to CLSA. Workouts do not move quickly in China: of the Rmb1.4tn lent by the banks to the AMCs to buy the debt, Rmb800bn is still outstanding. The fact that the AMC's cash recovery rate on the bad loans was about 20 per cent has not helped. There is also the heavy hand of the state to take into account: those loans were due for repayment in 2009 and 2010, at which point the Ministry of Finance told the banks the loans would be extended on the same terms. In a clue that Huarong was tidying itself ahead of a listing, the state paid down some of its debt to CCB for the first time last year. The big banks will report earnings in the coming fortnight. One theme is a certainty: the gap between what they present as their non-performing loan ratios (less than 1 per cent, currently), and what sceptics fear is the real total. Back in the 1990s, it hit about 20 per cent. China is a very different place now. Investors can only hope it would handle another crisis differently, too.