News on securitization: China resumes Securitization

September 25, 2013:

Historical Developments:

Asset securitizations in China were halted since 2009 after the credit crisis in US markets started developing. However in May 2012, the activity gained round after the PBoC, CBRC and Ministry of Finance jointly issued a Notice on Matters Concerning Further Expansion of Credit Assets Securitization Pilot Program and planned for the launch of its third pilot program with RMB 50bn limit in the interbank market. A year later, in March 2013, as a part of its deregulation objectives, the CSRC upgraded asset securitization activity to a routine business process by issuing Securities Company Asset Securitization Regulations. The following table outlines the historical developments in the Chinese Securitization market:

Current Reforms:

Further to increasing market activity, the State Council executive meeting on August 28, 2013 decided to expand the trial program for securitization of credit assets to make it a more commonplace activity. The Council has allowed the trading of high-quality asset-backed securities on stock exchanges for the first time. The following graph shows that NBFIs in China were acting as virtual conduits for the banks. The move by the State Council to allow securitization activity only legitimizes what is currently happening informally:

Souce: PboC, CEIC, SG Cross Asset Research/Economics

The State Council has called for strict supervision of securitizing credit assets and that the functions and responsibilities of trust companies and accounting firms should further be made clear in this regard. The Chairman of the China Banking Regulatory Commission Shang Fulin has also said that detailed measures should be put in place to enable the expanded credit asset securitization trial to benefit more small and medium enterprises which are cash-strapped. According to the statistics from the CBRC, by the end of July 2013, the outstanding balance of SME loans nationwide amounted to RMB 16.5 trillion. The reforms should also help participating banks expand their funding options. It should also help the government meet funding requirements for infrastructure projects. In addition to this, the CBRC has sent out a circular to insurers to make them actively participate in the pilot. Currently, credit assets that may undergo securitization include credit loans, guarantee loans, small and micro-sized business loans and auto loans.

Remaining Challenges:

Some analysts feel that although the reforms may boost liquidity through stock exchange trading and improve regulatory oversight over the banking sector, it may not spurge activity in this sector, given the illiquid nature of these products and that large scale transfer of NPLs from banks may not be easy because of pricing issues. If volume of issuances increases in the future and the cost of issuances falls, then products will become more liquid.



Interbank Market regulated by CBRC

Securities Companies regulated by CSRC


Initial Pilot program launched by PBoC and CBRC; Limit of RMB 15 bn for interbank market

Pilot securitization program launched with the CICC’s securitization program China Unicom

First issue of ABS made by China Development Bank


 Second Pilot Program launched with limit of RMB 60 bn


Activity halted due to financial crisis

CSRC issued Manual for Securities Company Corporate Assets Securitization Pilot Program


Third Pilot Program launched with RMB 50 bn limit


PBoC, CBRC and Ministry of Finance jointly issued the Notice on Matters Concerning Further Expansion of Credit Assets Securitization Pilot Program.

State Council issued Guidelines on Financial Support for Adjusting, Transforming and Upgrading the Economic Structure

** The information has been prepared from information in CSRC, CBRC website and Nomura Research Institute.

To read more on the China Regulations please click here

Reported by: Shambo Dey