Foreign and domestic distressed-debt funds expect a big supply of bad loans to come on to the market in China after at least five years in which banks largely sat on their portfolios of troubled loans.

Executives at Clearwater Capital, a Hong Kong-based fund, and at Guangzhou-based Shoreline Capital say that Chinese lenders must dispose of bad loans to prepare for a new batch of non-performing debt, stemming from the credit binge Beijing encouraged after the global financial crisis.

“Now that there is a new flow of bad loans, the banks have to dispose of their legacy loan problem,” says Ben Fanger, co-founder of Shoreline. “Deals being offered to Shoreline are at prices that are lower, on average, than in recent years. We are having meaningful dialogues again.”