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The emerging AMCs may be also tasked with cleaning up local government debt that has accumulated in recent years through provincial, city and county financing platforms, several sources say. These platforms, unique to China, borrowed heavily to finance public projects such as new roads and government buildings after the 2008 financial crisis.
So far, the sources said, neither the Jiangsu AMC nor its Zhejiang counterpart has tried to tackle platform debt, primarily because they lack adequate capital for such huge assignments.
Nevertheless, the platform debt problem may not be as serious as some financial industry experts have feared. So far in Zhejiang, said a source close to the provincial AMC, none of the region's debt tied to government platforms had faced a serious default risk.
Working in the platforms' favor is high liquidity in industrially strong Zhejiang and Jiangsu, said the source, which helps keep this debt under control.
(Read more: China's bad-loan skeletons to haunt markets)
A CBRC official who oversees banking in the Yangtze River Delta region, which includes Jiangsu, said local government financing platforms are keeping up with loan interest payments.
But Jiangsu's AMC, according to a source close to that entity, is mainly handling only unpaid loans tied to troubled steel manufacturers and steel traders. It has not touched the toxic debt held by the province's banks stemming from troubled solar power equipment manufacturers and shipyards.
The source said the Jiangsu AMC, with 5 billion yuan in registered capital, has the power to dispose of up to 2 billion yuan worth of non-performing assets. But the local debt pit may be considerably deeper – perhaps too deep for the AMC, he said.
In the first half of 2013, said a source close to CBRC's Jiangsu branch, about 42 percent of the 21.3 billion yuan in outstanding loans to steel manufacturers and traders had been marked as non-performing.
Yet Jiangsu's AMC is probably much stronger than comparable entities expected to emerge in other parts of the country. Experts say most provinces are likely to form AMCs that only meet the minimum registered capital requirement of 1 billion yuan.
(Read more: Chinese PM Li Keqiang pledges 'appropriate liquidity' in 2014)
When central government regulators initially decided to promote local AMCs, many predicted the emergence of a market-oriented solution to toxic debt. But government restrictions on debt disposal and a lack of financial transparency have cooled expectations of private investor involvement.
Some critics say these new AMCs may become no more than parking lots for bad loans assumed from banks. Yet that may fit the banks' business plans, giving them an incentive to cover AMC liabilities with new loans.
It's true that CBRC has been encouraging private investment in local government AMCs, said a source close to the Zhejiang AMC, but to date "there has not been much of need for strategic investors because banks have lined up to offer AMCs credit at low interest rates."
Moreover, central government regulations that restrict toxic asset disposal methods may lead banks and local AMCs into a revolving door. For example, the rules say an AMC must dispose of toxic assets by restructuring them. They cannot hold bankruptcy auctions or sell bad debt.
(Read more: Are China bank stocks cheap or just crummy?)
As a result, AMCs may wind up borrowing from banks to service bad debts that the rules say they must hold until conditions are ripe for restructuring.
A source close to the Zhejiang AMC said asset disposal rules are so restrictive that AMCs are not even allowed to swap bad assets among themselves.
Bankers said that in general a debt restructuring through an AMC would be a last resort means of handling a non-performing loan. But a bank might cut a deal with an AMC that sees potential value in property or other collateral used for the loan that turned toxic.
A source at China Construction Bank's branch in the Jiangsu city of Wuxi said the provincial AMC has been known to negotiate deals with steel companies in arrears because their land and factory buildings are considered valuable. The AMC can lease factories to other companies and hold property based on a bet that its value would appreciate.
(Read more: China-focused hedge funds buck market doldrums)
Jiangsu's success stories have been clouded, however, by transparency issues. Some have accused existing AMCs and banks of collaborating to violate Beijing's regulations.
Reportedly, some banks have shifted non-performing loans to AMCs temporarily for accounting reasons. Later, the banks have taken back the debt and paid handling fees to the AMCs.
The chance to make money by simply holding bad debt for a short period of time, coupled with the central government's push for toxic debt resolution, are among reasons why some analysts expect steady growth in the ranks of local AMCs.
One optimist is Greenwoods' Ni. "It will not be long before many more local governments rush in and set up their own AMCs to take over the banks' bad loans," he said.