CHINA Great Wall Asset Management Co., which is auctioning 8.1 billion yuan (US$976 million) of bad loans, would this month choose between bids by Goldman Sachs Group Inc. and Lone Star Funds, its adviser said.

　　The company, which manages bad loans made by China's fourth-biggest bank, would decide which of the two shortlisted companies would buy the loans before China's Oct. 1 National Holiday, said Michael Harris, a partner in the corporate recovery unit of PricewaterhouseCoopers LLP in China.

　　China's banks are trying to rid themselves of the bad-loan legacy of years of government-directed lending to unprofitable State-owned enterprises.

　　A Goldman-led group of investors last year paid 10 cents on the dollar for a batch of loans made by Industrial and Commercial Bank of China, and prices remain low because investors want to be sure they can get their money back.

　　"Pricing is artificially low at the moment because of uncertainty over government approvals, the costs of conversion on land rights and so on,'' said Harris, the Beijing-based PricewaterhouseCoopers partner. "If we had bankruptcy laws that were specific, that outlined the rights of debtors and creditors, then you would see a wave of activity in China.''

　　Goldman Sachs and Lone Star are the finalists out of about six interested parties.

　　Assets being offered to foreign investors include loans made to the textile and building material industries, said Great Wall spokesman Wen Xiantang, declining further comment.

　　Great Wall has taken over more than 300 billion yuan of nonperforming loans from Agricultural Bank of China, the nation's fourth-biggest lender.

　　China's four-biggest State-owned banks, which account for about 70 percent of the nation's loans, have moved 1.4 trillion yuan of bad loans into four asset managers.

　　These disposed of 210 billion yuan of bad loans and other assets in the first six months of the year, the People's Bank of China said in July.

　　"In their first two years, these AMCs have made only a limited contribution to the resolution of the (nonperforming loan) problem,'' the Bank for International Settlements said in an August research report.

　　"They have taken over less than half of the nonperforming loans at the big four banks.''

　　Great Wall disposed of 76 billion yuan, while Huarong Asset Management Corp., which manages bad loans for No. 1 lender Industrial & Commercial Bank of China, sold 38.9 billion yuan of assets.

　　Orient Asset Management Co., which manages the bad debt of the Bank of China, sold 31.9 billion yuan and China Cinda Asset Management Co. sold 63.5 billion yuan in bad loans and assets from China Construction Bank.

　　About 25 percent of Chinese loans are bad, according to the government. Moody's Investors Service estimates that level may be as high as 35 percent.

　　China will need to spend US$518 billion cutting its bad-loan ratio to a manageable 5 percent, Standard & Poor's said in May.

　　The nation's first auction of bad loans was last year, heralding the increased effort the government is putting into the industry cleanup.

　　Still, those sales face competition from asset sales in economies like South Korea, where it is easier for investors to collect on loans.

　　International buyers of bad loans in China have to receive more than half a dozen approvals from the People's Bank of China, the Ministry of Finance, the State Tax Bureau, the State administration of Foreign Exchange, the State Economic and Trade Commission and China's cabinet, the State Council, according to Harris.

　　"The four asset managers "are operating within a less than benign environment of multiple government agencies, which may have conflicting agendas,'' the Bank for International Settlements said.(SD-Agencies)