It has been 20 years since China opened its nonperforming-loan market to foreign investors. Like any fad that occasionally makes a comeback, once again it seems pundits are advising foreign investors to take a hard look at investing in Chinese NPLs. Will the nascent NPL market finally make a recovery, and will foreign investors finally get to buy NPLs at market-clearing prices?

This article explores the 2019–2020 opportunity and what’s different, if anything, this time around.

Supply side

According to PwC’s report, 2019: A sunnier outlook for international China NPL investors, the amount of “potential” NPLs and distressed assets in China grew approximately 25 percent from December 2016 through June 2018, and is likely to keep growing as the Chinese economy continues to slow.

Total NPLs officially recorded by Chinese banks, including “special-mention loans” — loans that could potentially become NPL — and the amo