China has announced plans to launch a new pilot securitization
program that will allow some Chinese commercial lenders to
securitize financial assets.1 Recent news reports
indicate that the trial securitization program will involve up to
$7.9 billion of securitized assets.2 Eligible assets are
likely to include, among others, loans to local Chinese government
financing vehicles, which would address what has been an area of
significant concern.3 One academic advisor to the
People's Bank of China noted that asset securitization could
help Chinese banks transform illiquid assets into liquid
"Based on the results of the pilot securitization program,
we would gradually promote asset securitization," said Jin Qi,
assistant governor of the People's Bank of China.5
According to recent news reports, it will probably be another two
years before securitizations directed at foreign investors will be
permitted in China.6 The pilot program transactions will
likely trade ver-the-counter in China's interbank bond
Officials of the China Banking Regulatory Commission have
expressed concerns about the proposed pilot securitization program
and suggested that some Chinese banks may try to mix bad loans with
good loans in pools to be securitized.8 Yan Qingmin,
assistant chairman of the Commission, suggested that specific
guidelines would have to be implemented before the pilot program
could move forward.9
According to a report published by a rating agency in late 2008,
most securitizations in China prior to October 2008 were structured
as balance-sheet collateralized loan obligations.10
Asset securitizations by Chinese banks and other Chinese financial
institutions have historically been issued and traded in the
interbank market.11 While corporate asset-backed
securitizations are likely to be insignifi-cant in the near
term,12 more recent news reports have indicated that
China's asset-backed securities and mortgage-backed securities
markets could grow to about $460 billion within the next several
years.13 A vice governor of the People's Bank of
China has said that banks in China needed to securitize a portion
of their large stockpile of bank loans to stimulate growth in the
financial sector.14 The bank official suggested that
securitization would permit Chinese banks to set aside less capital
for loan provisions.15 According to news reports last
September, the China Banking Regulatory Commission was working on a
plan at the time with the People's Bank of China, which would
allow banks to set aside less capital by securitizing their
assets.16 As noted by one bank regulator at the time,
this move was likely made due to recognition by Chinese officials
that Chinese banks face the possibility of increased defaults on
loans to the property sector and local government financing
1 Wang Xiaotian, Trial of Asset Securitization,
China Daily, March 9, 2012. In 2005, the Chinese gov-ernment
announced a pilot program that allowed the China Development Bank
Corp. to securitize its loans and the China Construction Bank Corp.
to securitize its mortgage loans. The program was later expanded to
include other Chinese financial institutions, but the program was
sus-pended during the financial crisis. Id.
6 China Revives Giant Securitization Program,
Asset-Backed Alert, March 23, 2012, at 6.
8 Id. at fn. 1.
10 Fitch Ratings, Outlook for Securitization in
China, November 5, 2008.
11 Id. at fn. 10, pg 2.
12 Id. at fn. 10, pg 6.
13 Central Banker Eyes Growth in Securitization,
China Daily, April 28, 2011.
16 China Regulator Looks at Allowing Bank
Securitization: Press, Market News International, September
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