Chasing China's $1.4 trillion debt may cause distress to foreign investors

More bad loans are expected to come to market as China attempts to clean house and cut off overburdened borrowers

As compelling as the $1.4 trillion pile of distressed assets in China looks, there are few reasons to think foreign investors will walk away with substantial winnings.

Prices are falling again after a blockbuster 2017, when a wave of domestic institutional money pushed distressed debt values to almost 80 cents on the dollar from 30. This partly reflects new supply and partly a crackdown on the shadow-banking system that previously allowed investors to finance purchases of nonperforming loans, according to Dinny McMahon of Macro Polo, an in-house think tank of the Paulson Institute.

About 3,000 local investment funds, well versed