Chapter

Chapter 8 Asset-Backed Securities

Editor(s):
Alfred Schipke, Markus Rodlauer, and Longmei Zhang
Published Date:
March 2019
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Author(s)
ZONG Jun, LI Bo and Laura E. Kodres 

Asset securitization has long been recognized as a way to help overall financial market development, including the money market, the credit market, and the bond market. It can improve the efficiency of resource allocation in a country’s financial sector by diversifying risks across potential investors, which in turn can revitalize idle assets and enhance the ability of the financial market to serve the real economy. Since the early 1990s, the asset-backed securities (ABS) market in China has gone through several phases, including exploration, pilot programs, stagnation, a relaunch of pilots, and full-scale rapid development. Over the past 20 years, the regulatory framework has continually improved and the market size has grown substantially, with rapid expansion of new types of underlying assets. Today, asset securitization plays an important role in serving the real economy and revitalizing idle assets.

The potential for development of asset securitization nonetheless remains vast, reflecting the enormous scale of bank credit assets (mostly loans), urgent demand for enterprise financing, and policy support. This chapter reviews the historical development of the ABS market in China, discusses current challenges, and provides policy recommendations, especially for improving legal frameworks, liquidity, information disclosure, credit ratings, and market connectivity.

Overview of China’s Asset-Backed Securities Market

Asset-backed securities in China are categorized into credit asset-backed securities (credit ABS), enterprise asset-backed special plans (enterprise ABS), asset-backed notes for nonfinancial enterprises (ABN), and insurance asset-backed plans (insurance ABS).

Credit ABS are issued by financial institutions such as banks, automobile financing companies, consumer financing companies, and financial leasing companies on the interbank market. The People’s Bank of China regulates issuance, while issuers are required to register at the China Banking and Insurance Regulatory Commission (CBIRC). Enterprise ABS are issued by nonfinancial firms or financial institutions on the exchange market in Shenzhen or Shanghai and are regulated by the China Securities Regulatory Commission (CSRC). Only qualified investors are allowed to invest in enterprise ABS. ABNs are issued by nonfinancial companies on the interbank market and are regulated by the National Association of Financial Market Institutional Investors (NAFMII).1 Insurance ABS are typically issued by insurance asset management firms, regulated by the China Banking and Insurance Regulatory Commission as well, and only insurance companies (and a few other sanctioned financial institutions) are allowed to invest in them. Table 8.1 provides an overview of the different products and markets.

Table 8.1Four Categories of Asset-Backed Securities in China
Credit ABSEnterprise ABSAsset-Backed NotesInsurance ABS
Regulatory agenciesPBC and CBIRCCSRCNAFMIICBIRC
ApprovalFiling to CBIRC and registration at PBCReviewed and approved by the Shanghai or Shenzhen exchange; filing to the Asset Management Association of ChinaRegister at NAFMIIReviewed and approved by CBIRC for first issuance, after which similar products are allowed to report issuance
Special purpose vehicleSpecial purpose trustSpecial asset management plansSpecial purpose trust/special purpose companiesAsset-backed plans
Initiating institutionsFinancial institutionsNonfinancial companies or financial institutionsNonfinancial companiesNonfinancial companies or financial institutions
InvestorsInterbank market investorsQualified investors; fewer than 200 investorsInterbank market investorsInsurance institutions and other qualified investors
Underlying assetCredit assetDebt or equity asset not on the Negative List1Similar to enterprise ABSSimilar to enterprise ABS, Negative List'
Trading marketInterbank marketThe exchange market using the bidding system and securities companies as intermediariesInterbank marketA specific trading platform for insurance assets
Register and clearanceChina Central Depository and Clearing Co.China Securities Depository and Clearing Corporation LimitedShanghai Clearing HouseInsurance exchange
Related regulations"Administrative Measures for the Credit Asset Securitization Pilot Program""Administrative Regulations for Securities Company Asset Securitization Operations""Guidelines for Asset-Backed Notes of Non-Financial Enterprises on the Interbank Bond Market""Provisional Measures for the Administration of Asset-Backed Plans"
Source: Authors' compilations from various enacted regulations.Note: ABS = asset-backed securities; CBIRC = China Banking and Insurance Regulatory Commission; CSRC = China Securities Regulatory Commission; NAFMII = National Association of Financial Market Institutional Investors; PBC = People's Bank of China.

Negative List Regulation refers to the policy that as long as a certain business is not prohibited explicitly, companies can issue ABS securities from cash flows from this firm without prior approval of the regulators.

1 Insurance ABS must also comply with penetrating supervision, which refers to the regulatory practice that the regulators verify the root sources of funding. For example, if the investor is a private equity fund, then the fund manager needs to provide information about the sources of the funding before purchasing insurance ABS products.
Source: Authors' compilations from various enacted regulations.Note: ABS = asset-backed securities; CBIRC = China Banking and Insurance Regulatory Commission; CSRC = China Securities Regulatory Commission; NAFMII = National Association of Financial Market Institutional Investors; PBC = People's Bank of China.

Negative List Regulation refers to the policy that as long as a certain business is not prohibited explicitly, companies can issue ABS securities from cash flows from this firm without prior approval of the regulators.

1 Insurance ABS must also comply with penetrating supervision, which refers to the regulatory practice that the regulators verify the root sources of funding. For example, if the investor is a private equity fund, then the fund manager needs to provide information about the sources of the funding before purchasing insurance ABS products.

Credit and enterprise ABS are the two major asset-backed products by market share. ABNs’ share is relatively small, but is growing rapidly. Insurance ABS are developing slowly, and thus are not reflected in Figure 8.1.

Figure 8.1.Stock of Asset-Backed Securities Issuance as of June 2018

Sources: China Central Depository and Clearing Co.; and WIND Economic Database (www.wind.com.cn).

Note: ABN = asset-backed notes for nonfinancial enterprises; ABS = asset-backed securities.

Since the asset-backed securities market in China is still in its early phases, initiating institutions are cautious and most of them have adopted healthy assets with low realized default rates (so far) as underlying assets.2 Most ABS do not have complicated structures and resecuritization products are rarely issued. At present, more than 80 percent of products are rated AA and above (Figure 8.2). As the global financial crisis revealed, however, risks related to ratings need to be closely monitored (Caprio, Demirgüç-Kunt, and Kane 2010).

Figure 8.2.Structure of Credit Ratings of Credit Asset-Backed Securities and Enterprise Asset-Backed Securities, 2005–18

Sources: China Central Depository and Clearing Co.; and WIND Economic Database (www.wind.com.cn).

Note: ABS = asset-backed securities.

1 Data for 2018 are from January through July.

Judging by the shift of the proportion of credit ratings during the tenure of ABS, credit ABS have achieved higher ratings, and a larger proportion of higher ratings, than enterprise ABS. This is probably because credit ABS are highly standardized, have better disclosure standards, and have good underlying assets. Meanwhile, because credit ABS are tiered securities, repaying their investors according to various priorities, high-priority tiers that are paid first from the cashflows in the securitization usually have higher credit ratings than others. Compared to credit ABS, low-priority tiers of enterprise ABS usually pay out interest to holders before maturity, with these withdrawals of cashflows lowering amounts that would otherwise allow excess collateral to remain for the safety of high-priority tiers. Also, the credit ratings of non-AAA securities mostly rely on the third parties to pay any shortfall in promised payments or an external credit enhancement, such as a guarantee of payments or over collaterization. All those factors contribute to lower proportions of higher ratings for enterprise ABS. Furthermore, in the past two years, a larger proportion of enterprise ABS products have received lower ratings at inception, possibly because of a perception of potential improper management, lower expectations of underlying asset performance, and the operational risks of the initiators.

Historical Development

This section reviews the development of the ABS market in the last two decades, which has been bumpy. It is an example of the unique financial development path in China, which often starts with pilot schemes, followed by temporary setbacks and interruptions in the middle stages, but steady expansion over the long term. Overall, the ABS market has progressed through five phases: (1) exploration from 1992 to 2004, (2) the pilot stage from 2005 to 2008, (3) stagnation from 2009 to 2011, (4) a relaunch of pilot programs from 2012 to 2013, and (5) a more normal development path from 2014 to the present.

1. Exploration, 1992–2004

From 1992 to 2004, both the market and regulatory agencies explored the market and regulations and conducted research to establish a practical and legal foundation for starting asset securitization in China.

Market Exploration

Market exploration took place from the early 1990s as the economy developed rapidly and market participants sought to diversify and customize financing. Against this background, asset securitization—a financing option already mature in European and US markets—gradually came into view in China, and some market institutions began independently exploring such operations.

In 1992, the Sanya Municipal Development Construction Company undertook China’s first asset securitization, using land in the Sanya Danzhou subdivision as its underlying asset, and made a public offering of RMB 200 million in investment securities maturing in three years. It achieved “bankruptcy remote-ness,”3 that is, it removed the liquidation risk of the underlying asset if the construction company went bankrupt by adding some guarantee clauses in the contract. For several years thereafter, market institutions mainly issued ABS abroad. In 1996, Zhuhai Expressway Company Limited issued a covered bond through a private placement in the United States using expressway toll collection rights as the underlying asset. In 1997, China COSCO Shipping Corporation also issued covered bonds in the United States and used the maritime shipping income of its North American subsidiary as the underlying asset. And in 2000, China International Marine Containers Group and ABN AMRO jointly offered asset-backed commercial paper using the trade service receivables of the group as the underlying asset.

From 2001 through 2004, Chinese financial institutions accelerated their exploration of asset securitization. In 2002, the Industrial and Commercial Bank of China and COSCO jointly initiated a US$600 billion ABS offering, making it the first Chinese bank to launch an overseas securitization. In 2003 and 2004, China Cinda Asset Management Co., China Huarong Asset Management Co., and the Ningbo branch of the Industrial and Commercial Bank of China each successively disposed of nonperforming credit assets using asset securitization, representing an early attempt to securitize nonperforming assets.

Regulatory Exploration

After the 1990s, the need to reform China’s financial system, improve the financing structure, and mitigate and control bank risk became increasingly urgent. Asset securitization, as a financial innovation able to revitalize idle assets, optimize resource allocation, and transfer risk, attracted not only the interest of market participants, but also the attention of China’s financial regulators. Regulators recognized that several aspects of securitization required them to step in to provide legal certainty and appropriate infrastructure to allow the private market to develop safely.

Starting in 1998, the China Construction Bank (CCB) and China Development Bank (CDB) successively conducted research on asset securitization, explained to the People’s Bank of China their ideas about mortgage-backed securities, and requested authorization to launch pilot programs.4 The People’s Bank of China, the China Banking Regulatory Commission, and other agencies started to actively research, explore, and evaluate asset securitization.

Because special purpose vehicles (SPV) occupy a core position in the structure of asset securitization transactions and are key to achieving bankruptcy remoteness and tax neutrality, the legal question of what type of SPV to use became central to the initiation of asset securitization in China. Under China’s legal framework, especially the Corporate Law, substantial impediments hindered incorporation of special purpose companies. Meanwhile, the Trust Law of the People’s Republic of China, Measures for the Administration of Trust Companies, and the Provisional Measures for the Administration of Capital Trusts of Trust Companies issued in 2001 and 2002 have clearly stated principles such as bankruptcy remoteness for trust assets. As such, the special purpose trust became the most feasible option for establishing asset securitization SPVs in China.

In terms of infrastructure, the interbank bond market has developed rapidly since its launch in 1997, and it now exceeds the exchange market as the main trading platform for bonds. The platform is also the closest to international standards for trading asset securitizations. Against this backdrop, a standard ABS model has gradually developed, with bank credit assets used as the underlying assets, special purpose trusts established by trust companies as SPVs, and asset-backed securities issued for trading on the interbank bond market. This model has thus achieved the standard securitization requirements of bankruptcy remoteness and “true sale” (that is, a legal transfer of ownership of underlying assets to the SPV)—a breakthrough in asset securitization in China.

In January 2004, the State Council issued “A Number of Opinions Concerning Promoting Capital Market Reform and Opening and Stabilizing Development,” which required “active exploration and development of asset securitization varieties.” From April through December of that year, the People’s Bank of China and the China Banking Regulatory Commission jointly presented multiple applications for credit asset securitization pilot programs, along with policy design proposals, to the State Council. It recommended the selection of CDB and CCB as China’s first pilot banks for initiation of credit asset securitization operations, and the use of the national interbank bond market as the platform for circulation and trading of these credit asset securitizations.

In February 2005, CDB and CCB obtained pilot qualifications and separately initiated pilots in credit asset securitization (specifically, credit loan obligations— namely, enterprise credit asset securitization) and mortgage-backed securities. Also, the State Council clarified that the People’s Bank of China would take charge of establishing the Credit Asset Securitization Pilot Coordination Group to ensure that participating government agencies coordinate their actions. The direction of the pilot program was clear, preparations were in order, and there was no turning back from this launch.

In addition, in 2004, the China Securities Regulatory Commission began conducting research and discussing the use of securities companies’ special asset management plans as a vehicle for enterprise asset securitization operations. It published the “Notice Concerning Questions Related to the Initiation of an Asset Securitization Operations Pilot by Securities Companies,” which set out how securities firms should go about issuing such securitizations. As defined by the China Securities Regulatory Commission, enterprise asset securitization functions as follows: A securities company initiates a special asset management plan as the SPV;5 issues asset-backed beneficiary certificates to investors, using the funds from the sale of the certificates to purchase the assets able to generate stable cash flows from the original holder; and then distributes the earnings of these assets to the holders of the beneficiary certificates.

Market Infrastructure and Rating Agencies

In December 1996, the government-owned China Central Depository and Clearing Co. (CCDC) was founded for central registration, custody, and clearing of bonds. This launched the era of paperless bonds in China and established a real-time, gross delivery-versus-payment clearing mechanism using central bank money. This drove a rapid rise in the interbank bond market; substantially increased market efficiency, transparency, and security; and established a firm foundation for the exploration and initiation of asset securitization.

As intermediaries that play an important role in asset securitization operations, China’s credit rating agencies formally began to develop in the early 1990s. The successive establishment of mainstream rating agencies, such as Shanghai New Century Investment Services Company, the China Chengxin Securities Rating Co., and Dagong Global Credit Rating, introduced internationally advanced rating methods and concepts and began cooperation with international rating agencies. In December 2004, the People’s Bank of China published Matters Related to the Credit Ratings of Bonds Issued on the Interbank Bond Market, requiring that, “except for those for which ratings are not required, all institutions intending to issue bonds and all bonds issued on the interbank bond market must have their credit rated by a rating agency domestically registered with the Administration for Industry and Commerce and possessing bond rating capabilities.” This successfully established the systematic rating of all credit ABS (except sovereign bonds).

2. Pilots, 2005–08

Guided and driven by the regulatory agencies, China’s first asset securitization pilot was launched in 2005 and then expanded from 2006 through 2008, effectively building the market. Under the principle of parallel advancement of the “pilot” and “legislation,” an asset securitization policy framework adapted to Chinese national conditions was preliminarily established.

Regulatory Framework

In April 2005, the People’s Bank of China and the China Banking Regulatory Commission jointly issued the “Administrative Measures for the Credit Asset Securitization Pilot Program,” China’s first regulatory document formally intended to standardize asset securitization operations, marking the formal launch of the credit asset securitization pilot program. Subsequently, three sets of supporting regulations regarding credit asset securitization operations were successively announced, standardizing accounting treatment, refining regulatory requirements, and clarifying tax incentive policies (Table 8.2).

Table 8.2Regulations Promulgated during the Pilot Launch Phase, 2005–06
Publication DatePublishing AgencyTitleKey Points
May 2005Ministry of FinanceRegulations for the Accounting Treatment of the Credit Asset Securitization Pilot ProgramStipulates the accounting principles for initiating institutions, special purpose trusts, trustees, depository institutions, and loan-service institutions
November 2005China Banking Regulatory CommissionAdministrative Regulations for the Supervision of the Financial Institution Credit Asset Securitization Pilot ProgramStipulates market entrance requirement and procedures for financial institutions to serve as initiating institutions; sets specific operating regulations for financial institutions to participate in securitizations; sets risk control requirements
February 2006Ministry of Finance, State Administration of TaxationNotice Concerning Questions of Tax Policy Related to Credit Asset Securitization (referred to as Notice No. 5)Sets tax policies on stamp tax, business tax, and income tax for credit ABS products, providing preferential tax rate to credit ABS products
Source: Authors.Note: ABS = asset-backed securities.
Source: Authors.Note: ABS = asset-backed securities.

In January 2007, the People’s Bank of China and the China Banking Regulatory Commission jointly submitted the “Request for Instructions Concerning the Steady Expansion of Credit Asset Securitization Pilot Work” and received State Council approval to increase the number of pilot institutions and issue size. Soon thereafter, targeting the issues that arose during the first round of the pilot program, the regulatory agencies improved the institutional setup and successively released three documents to standardize information disclosure, adjust trading liquidity rules, and strengthen checks and risk mitigation and control for underlying assets (Table 8.3), increasing the rigor of the trading structure and the standardization of operations.

Table 8.3Regulations Promulgated during the Pilot Expansion, 2007–08
Publication DatePublishing AgencyTitleKey Points
August 2007People’s Bank of China“Notice Concerning Matters Related to Information Disclosure for the Underlying Asset Pools of Credit Asset Securitizations”Emphasis on the integrity of information disclosure of the asset pool and the availability of information
August 2007People’s Bank of China“Operational Rules for Pledge-Style Repurchases of Asset-Backed Securities”Allows ABS to be pledged in repo agreements to enhance the liquidity of ABS, attracting investors
February 2008China Banking Regulatory Commission“Notice Concerning Further Strengthening the Administration of Credit Asset Securitization Operations”States that only good assets are qualified as underlying assets for ABS; stipulates that financial institutions participating in the pilot programs should make strict capital accruals; control credit risks; prevent operational risks, moral hazard, and legal risks; and should develop the credit ABS business according to their management capabilities
Source: Authors.Note: ABS = asset-backed securities.
Source: Authors.Note: ABS = asset-backed securities.
Market Development

During 2005–08, 12 domestic banking institutions issued 19 credit ABS products on the interbank bond market for a total of about RMB 67 billion, and circulation increased progressively each year.6

Underlying asset types expanded from general corporate loans and personal mortgage loans at the very beginning to include nonperforming loans, auto loans, and medium- and small-enterprise loans. The number of issuers also increased from the original two banks to include joint-stock commercial banks and automobile financing companies. The pilot program offered the opportunity for asset management companies to gain practical experience to be able to handle asset securitization operations. Investors gradually expanded to include joint-stock commercial banks, city commercial banks, credit cooperatives, finance companies, foreign-owned banks, and securities investment funds. Principal and interest were paid in full for all products issued.

On the exchange markets, the China Unicom CDMA Network Rental Fee Income Plan was established in August 2005, formally launching the pilot program for enterprise asset securitization. Before the pilot was suspended after September 2006, nine enterprise asset securitization products were issued, totaling RMB 26.5 billion.7

Market Infrastructure and Rating Agencies

In August 2005, as an issuer and custodian institution of credit ABS, the China Central Depository and Clearing Co. (CCDC) published the Operational Rules for the Registration, Custody and Clearing of Asset-Backed Securities, standardizing operations and protecting investor interests. The Central Bonds Integrated Business System successfully supported the issuance and trading of the first batch of ABS, creating supportive conditions for the expansion of the pilot program. In addition, in 2007, the CCDC began publishing China Bond ABS yield curves, which became a benchmark for pricing and aided risk management of the asset securitization market.

For the rating of credit for the first batch of securitization products, CDB retained Fitch Ratings to provide technical support, and CCB retained Moody’s and China Chengxin Credit Rating Group to engage in technical cooperation, offering support for the risk evaluation of asset securitization products. An oligopolistic landscape gradually emerged in the domestic rating market, with China Chengxin, China Lianhe Credit Rating Co., and Dagong Global Credit Rating essentially capturing the primary share of the market. In 2006, the People’s Bank of China successively published the People’s Bank of China Guiding Opinion on the Administration of Credit Ratings and Credit Rating Specifications for the Credit Lending Market and the Interbank Bond Market, standardizing the operations and administration of rating agencies. In 2007 and 2008, the China Securities Regulatory Commission and the People’s Bank of China successively published Provisional Measures on the Administration of Credit Rating Operations in the Securities Market and the Notice Concerning the Strengthening of Interbank Bond Market Credit Rating Operations, and approved the credit rating agencies that were permitted to engage in credit rating operations in the respective markets.8 The improvement and clarity of the policies and the standardization of supervision resulted in the enhancement of credit rating agency credibility.

3. Stagnation, 2009–11

In 2008, the subprime loan crisis in the United States sparked the global financial crisis. To guard against potential financial risks that may also have been present in Chinese securitizations, Chinese financial regulators suspended approval of credit asset securitization products and enterprise asset securitization offerings from 2009 to 2011, and trading in outstanding securities was inactive.

During this period, to build the capacity of the Chinese banking system to withstand financial risk, the China Banking Regulatory Commission published “Guidelines for the Measurement of Regulatory Capital for the Asset Securitization Exposure of Commercial Banks” in February 2010. These required the strengthening of prudential supervision of risk exposure arising from engagement in asset securitization operations and specified that additional provisions be held against the securitization risk exposures.

4. Pilot Program Relaunch, 2012–13

The history of other, foreign financial markets and the earlier practice of China’s credit ABS suggested that the emergence of a credit ABS market is a natural development, to be encouraged and nurtured. Hence, in 2012 and 2013, with vigorous policy support, China’s asset securitization pilot program was relaunched and expanded, risk controls were strengthened, and market development got back on track.

Regulatory Framework

In May 2012, the People’s Bank of China, the China Banking Regulatory Commission, and the Ministry of Finance jointly issued the “Notice Concerning Matters Related to the Further Expansion of the Credit Asset Securitization Pilot Program” (the Notice), which laid out an in-depth and meticulous, principled standardization of the expansion and promotion of the credit asset securitization pilot program. Credit asset securitization operations, which had lain dormant for three and a half years, were relaunched, and the program entered the second round of the pilot phase, with an issuance limit of RMB 50 billion.

In July 2013, the State Council published the Guiding Opinions Concerning Financial Support for Adjustment, Transformation and Upgrading of the Economic Structure, clarifying the need to gradually promote the development of credit asset securitization, revitalize funding support for small and micro enterprises, and adjust the economic structure.

In August 2013, the State Council decided to expand the credit asset securitization pilot program, with a firm grounding in strict risk control. The third round of the pilot program was launched, and the total issuance limit was increased to RMB 400 billion.

Notably, after the financial crisis, financial regulatory agencies in Europe and the United States successively introduced policies requiring entities engaged in asset securitization to bring their interests in line with those of investors. This offered Chinese regulators a reference point and empirical lessons in their formulation of asset securitization risk-prevention policies. In December 2013, the People’s Bank of China and the China Banking Regulatory Commission jointly issued the “Announcement Concerning Further Standardization of the Risk Retention Conduct of Asset Securitization Originating Institutions,” requiring a risk-retention ratio of no less than 5 percent of the size of an individual product for credit asset securitization, while the retention ratio for the lowest-rated products (or tranches) within an overall securitization must also not be less than 5 percent of the issue size of the lowest-rated products, topping up the overall retention. This requirement firmly established a rational risk benchmark for credit asset securitization, and represented a balancing of incentives regarding retention requirements set forth in the Notice.9 By requiring significant ownership of the lower-rated products, the Notice aimed to effectively control risk by providing an incentive to carefully oversee the credit quality of the riskiest assets, without the retention requirement being so high as to discourage issuance entirely.

On the exchange market, in May 2009, the China Securities Regulatory Commission published the “Letter Reporting the Status of the Securities Company Enterprise Asset Securitization Operations Pilot Program” and the “Guidelines for the Securities Company Enterprise Asset Securitization Operations Pilot Program (Provisional)” to relaunch the pilot program. In March 2013, the China Securities Regulatory Commission published the “Administrative Regulations for Securities Company Asset Securitization Operations,” and enterprise asset securitization began the shift from pilot program to regular, ongoing operations.

In addition, in August 2012, the National Association of Financial Market Institutional Investors published Guidelines for Asset-Backed Notes of Non-Financial Enterprises on the Interbank Bond Market. China’s third major category of asset securitization products—the nonfinancial enterprise asset-backed note, or ABN—was formally introduced.

Market Development

On September 7, 2012, CDB issued about RMB 102 billion in “Kaiyuan 2002 Phase 1 Credit Asset-Backed Securities,” which marked the relaunch of asset securitization operations, and became the first credit asset securitization product on the scale of RMB 10.0 billion. In 2012 and 2013, RMB 35.0 billion in credit asset securitization products were issued. A total of RMB 10.5 billion in ABNs, the new variety on the interbank bond market, was issued during this period.

On the exchange market, CITIC Securities issued the “Far East Phase 2 Special Asset Management Plan” in September 2011, marking the relaunch of the enterprise asset securitization market; by the end of 2013, a total of 11 enterprise asset-backed special plans had been issued, totaling RMB 11.856 billion.

Market Infrastructure and Rating Agencies

In July 2012, the Shanghai Clearing House published the Announcement Concerning Registration, Custody, and Clearing Operations for Credit Asset-Backed Securities, and began to offer credit ABS registration, custody, and clearing services. From the perspective of actual operations, services have been primarily offered on the personal housing provident fund ABS and fixed income, privately placed real estate investment trust (REIT) products—so-called quasi-REITs— that have existed since 2015.

Moreover, according to the requirements of the Notice, credit ABS should be subject to ongoing credit rating evaluation by two qualified credit rating agencies. The introduction of the “double rating” system is meant to serve as a double check, offering investors more reference information and encouraging rating agencies to continually standardize their ratings, playing a positive role in the full disclosure of credit risk and protection of investor interests.

5. Normalized Development Phase, 2014 to Present

At the end of 2014, with the improvement of system design, simplification of issuance procedures, and strengthened information disclosure and risk management, China’s asset securitization market formally entered a phase of regular development, and rapid market growth has continued.

System Construction and Policy Announcements

After March 2014, with the fall of interest rates, the enthusiasm of asset securitization continued to increase. However, due to the long process required for regulatory risk verification and approval, market participants missed a window of opportunity to issue new securities and faced additional issuance cost pressures. To solve this problem, at the end of 2014, the regulation of China’s asset securitization operations reached a major turning point, shifting from a transaction-based review and approval system to a filing system.

With this change, a “filing + registration system” was set in place for credit asset securitization. The China Banking Regulatory Commission published the Notice Concerning the Work Flow for Filing and Registration of Credit Asset Securitization in November 2014 and approved qualifications for 27 commercial banks to engage in credit asset securitization operations in January 2015. In April 2015, the People’s Bank of China published its 2015 Announcement No. 7. This clarified that trustee institutions and originating institutions that had already obtained the relevant operating qualifications from regulatory agencies, had issued credit ABS, and were able to disclose information according to requirements were permitted to apply to the central bank to register, and would be permitted to issue credit ABS during the registration validity period without needing to obtain a review for each security.

A “approval system + Negative List management” is in place for enterprise asset securitization.10 In November 2014, the China Securities Regulatory Commission published the Regulations for the Administration of Asset Securitization Operations of Securities Companies and Subsidiaries of Fund Management Companies (Document No. 49) and supporting guidelines,11 formally launching the enterprise ABS filing system, clarifying the legal status of special asset management plans as bankruptcy remote SPVs, and expanding the scope of operating entities and underlying assets.

Since 2015, improvements in the system construction of the asset securitization market have accelerated. First, strengthening of information disclosure has continued. To enhance the efficiency of issuance regulation and registration, increase market transparency, and promote the development of the credit ABS market, the National Association of Financial Market Institutional Investors has actively set up information disclosure guidelines for credit ABS products. It has published information disclosure guidelines (provisional) for asset-backed securities for personal mortgages, personal auto loans, shantytown renovation project loans, personal consumer loans, nonperforming loans, and small- and medium-sized enterprise loans in the “Procedures for the Assessment of Information Disclosure Work for Credit Asset-Backed Securities (Draft for Comment).”

Second, the pace of operational innovations has accelerated. In 2015, housing provident fund asset securitization was introduced. In 2016, the pilot program for nonperforming asset securitization was relaunched, and green asset securitization was promoted. In 2017, the scope of participants in the nonperforming asset securitization pilot was expanded.

That same year, the Ministry of Finance, the People’s Bank of China, and the China Securities Regulatory Commission published the “Notice Concerning Matters Related to the Standardization and Initiation of Asset Securitization of Public-Private Partnerships.” And nine ministries and commissions—including the Ministry of Housing and Urban-Rural Development, the National Development and Reform Commission, the Ministry of Finance, the People’s Bank of China, and the China Securities Regulatory Commission—jointly published the “Notice Concerning Accelerating the Development of the Residential Leasing Market in Large and Medium-Sized Cities with Net Population Inflows,” which respectively vigorously promoted the development of public-private partnership (PPP) asset securitization and REITs.

Third, exchange operating rules have been continually improved. The Shanghai and Shenzhen Stock Exchanges successively published the “Guidelines for Asset Securitization Operations,” the “Guidelines for the Confirmation of Listing Conditions for Asset-Backed Securities,” the “Guidelines for the Credit Risk Management of Outstanding Asset-Backed Securities (Provisional),” and the “Guidelines for the Content and Format of Periodic Reports for Asset-Backed Securities,” increasing operating efficiency. In addition, in August 2015, the China Insurance Regulatory Commission printed and distributed “Provisional Measures for the Administration of Asset-Backed Plans,” which clarified appropriate trading structures for the securitizations and administrative specifications for asset-backed plans.

Market Development

Driven by registration systems, credit asset securitization exploded in 2014, with 66 individual products issued and aggregate issues totaling nearly RMB 282 billion; this exceeded the aggregate amount issued from 2005 through 2013, and the momentum of rapid expansion has continued since 2015. Enterprise asset securitization accelerated substantially in 2015, and growth in issuance volume was vigorous in 2016 and 2017, with issuance and circulation volumes surpassing those of credit ABS for the first time in 2017. The issue size for asset securitization products as a whole in 2017 totaled RMB 1.45 trillion, and the outstanding balance at the end of the year broke the significant RMB 2.00 trillion benchmark (reaching RMB 2.08 trillion) (Figure 8.3).

Figure 8.3.Issuance Volume and Outstanding Volume on the Asset Securitization Market, 2005–18

(Trillions of renminbi)

Sources: China Central Depository and Clearing Corporation Limited; and WIND Economic Database (www.wind.com.cn).

Note: ABN = asset-backed notes for nonfinancial enterprises; ABS = asset-backed securities.

1 Data for 2018 are from January through July.

Concurrent with market growth, operational innovations advanced, playing important roles in supporting the transformation of economic structure and aiding development of inclusive finance. These innovations included continual enrichment of the types of underlying assets used for credit asset securitization, with the gradual introduction of consumer loans, credit card loans, and nonperforming loans. In 2017, the first interbank quasi-REIT product was issued; the structure of underlying assets shifted from one of dominance by collateralized loan obligations toward greater balance, and further evolved to put household residential mortgage-backed securitizations strongly in the lead (Figure 8.4).

Figure 8.4.Structure of Credit ABS Products Issued in the First Half of 2018

Sources: China Central Depository and Clearing Corporation Limited; and WIND Economic Database (www.wind.com.cn).

Note: ABS = asset-based securities.

In addition, originating institutions of credit asset securitization have expanded from the traditional large, state-owned banks to include city commercial banks, rural commercial banks, and financial leasing companies.12 On the investor side, foreign investors have been introduced as investment principals via Bond Connect. The Negative List management mechanism has been adapted for enterprise asset securitization, resulting in a diversification of underlying assets (Figure 8.5), which have expanded to include public-private partnership projects, commercial mortgages, entrusted loans, and REITs, with innovative products coming one after the other.

Figure 8.5.Structure of Enterprise ABS Products Issued in the First Half of 2018

Sources: China Central Depository and Clearing Corporation Limited; WIND Economic Database (www.wind.com.cn).

Note: ABS = asset-based securities.

Infrastructure and Intermediary Institutions

Following the revitalization of asset securitization, secondary market activity and investment demand have both heated up significantly. To objectively reflect price changes for ABS on the secondary market and provide investors with more performance benchmarks and investment targets, on July 20, 2016, the CCDC published China’s first ABS index, the ChinaBond Interbank Asset-Backed Securities Index. Asset-backed notes were incorporated into this index beginning on September 29, 2017.

At the same time, the external ratings for asset securitization have become increasingly sophisticated, rating agencies have improved their operating standards through practical operating experience and international cooperation, and credit ratings are playing an increasingly important role in the areas of risk disclosure and market discipline. In 2017, the People’s Bank of China published “Announcement No. 7,” clarifying that qualifying foreign-owned rating agencies could initiate credit rating operations on the interbank bond market, which will likely bring further improvements in the fairness, professionalism, and level of internationalization of credit rating agencies in China.

Areas for Improvement

Imperfections Remain in the Legal System

A sound legal system forms the foundation for market development. Compared to mature markets internationally, China’s asset securitization market lacks the standardization of comprehensive, specialized top-level laws, which increases the likelihood of disputes and legal risk. For example, despite several attempts at regulatory rulemaking, the formal legal status of the SPV is not clearly defined; this leads directly to difficulties for tax authorities in identifying the taxpayer status of SPVs and has an impact on the implementation of tax neutrality.

At the same time, defects and loopholes exist in the regulatory framework of enterprise asset securitization in the areas of bankruptcy remoteness and tax neutrality. First, “Document No. 49” clarified the bankruptcy remoteness function of special asset management plans, but it is only a departmental normative document. It has relatively low-level legal effect, and the corresponding higher law, the Securities Investment Fund Law, only clarifies that securities investment funds have bankruptcy remoteness similar to those of trusts. However, it does not incorporate special asset management plans into the scope of legislation, resulting in uncertainty regarding the bankruptcy remoteness of enterprise asset securitization on the higher legal level. Second, no special tax regulations exist for enterprise asset securitization, so that one can only refer to “Document No. 5” for credit asset securitization, requiring a great deal of communication and coordination with tax authorities; this increases the difficulty of advancing operations, which has an impact on the enthusiasm of market principals to participate.

Liquidity in the Secondary Market Is Low

The problem of severely inadequate secondary market liquidity in the asset securitization market became apparent by the time the pilot program was launched. Since the market entered its more recent phase of revitalization, trading activity has increased (Table 8.4), but turnover remains markedly lower than the overall level on the bond market. Taking the example of credit ABS entrusted to the custody of the CCDC, turnover rates in 2015 through 2017 were 7 percent, 25 percent, and 16 percent, respectively, while turnover rates for the bond market as a whole were 173 percent, 188 percent, and 102 percent, respectively. While low secondary market liquidity is not unusual in other countries, especially for highly specialized or complex structures, inadequate liquidity has become a key problem that limits the depth of China’s asset securitization market, and identifying the underlying reasons is urgently needed so that any regulatory hurdles that may be inhibiting market liquidity can be removed.

Table 8.4Trading Volumes on Asset-Backed Securities Settled by the China Central Depository and Clearing Company, 2014–18(Billions of renminbi)
YearTrading Volume
20142.10
201539.43
2016143.53
2017139.10
20181116.51
Source: China Central Depository and Clearing Co., Ltd.

Data for 2018 are from January through July.

Source: China Central Depository and Clearing Co., Ltd.

Data for 2018 are from January through July.

Information Disclosure Remains Inadequate

At present, the information disclosure system for credit asset securitization is relatively complete, but the information disclosure framework for enterprise asset securitization on the exchange markets remains relatively general, with insufficient granularity to accommodate the information needs of investors in the major categories of assets underlying these securitizations.

In addition, a substantial gap exists between the strictness of information disclosure for asset securitization in China and that in the United States and other mature markets. For example, China has no explicit requirements for disclosure according to individual underlying assets; disclosures at the time of issue are relatively complete, but ongoing disclosures are insufficiently detailed; and the level of standardization of information disclosures is inadequate, making it difficult for investors to systematically analyze underlying asset information, impeding the timely mitigation and control of risk.

Rating Capabilities Need to Be Enhanced

Good credit ratings are an important reference for the pricing of ABS and a key basis for investor decision making. China’s rating agencies have not had long to develop, and the rating system is not yet sound.13 Asset securitization operations were initiated relatively recently, so that substantial gaps remain in such areas as management experience, data accumulation, and market practices when compared with more advanced rating agencies in the international arena. Professionalism, standardization, and transparency all need improvement. The rapid development of the asset securitization market and the opening of the interbank bond market to foreign-owned rating agencies have also demanded greater professionalism and service quality from Chinese rating agencies.

Markets Are Segmented and Registration Is Decentralized

China’s asset securitization market is divided into the interbank and the exchange markets, which operate independently of each other and have different product structures, regulatory policies, participants, and trading methods. Not only is market segmentation detrimental to the development of one of the core advantages of asset securitization—risk diversification—but it also distorts market pricing and can give rise to regulatory loopholes and regulatory arbitrage.

The problem of registration of products of the same type on different platforms and clearing facilities is also rooted in this market segmentation. For example, bank credit ABS are issued and traded on the interbank market and registered and cleared through the CCDC, but the underlying assets for asset securitization products belonging to other credit categories of entrusted loans, internet loans, and microfinance loans are issued and traded on the exchange market and registered and cleared through the China Securities Depository and Clearing Corporation, a situation that is not conducive to market monitoring and risk control.

Risk Events of Enterprise ABS Are Increasing

Since the launch of the pilot program, credit ABS have experienced only one credit downgrade and have had more upgrades compared to enterprise ABS. In contrast, credit events of enterprise ABS have been increasing (Table 8.5).

Table 8.5Rating Shifts after ABS Issuance, 2008–18
Credit ABSEnterprise ABS
YearUpgradeDowngradeUpgradeDowngrade
20081000
20093000
20107000
20111000
20123000
201316000
201423000
2015113025
20161071168
201711801047
20181128015026
Source: WIND Economic Database (www.wind.com.cn).Note: ABS = asset-backed securities.

Data for 2018 are from January through July.

Source: WIND Economic Database (www.wind.com.cn).Note: ABS = asset-backed securities.

Data for 2018 are from January through July.

The first ABS default took place in 2016 when the Special Asset Management Plan for Toll Income Claim of Dacheng West Yellow River Bridge did not repay on time. In April 2018, the Special Asset-Backed Plan for Qinghui Leasing I defaulted on an interest payment. In 2017, three enterprise ABS were downgraded, all due to imperfections in cash collection management, trading structure design, or other management problems following issuance, rather than a deterioration in underlying assets. From January to the end of July 2018, 26 enterprise ABS from seven projects were downgraded, all due to lower-than-expected underlying asset performance and operational risks of initiators, indicating that the tightening regulations made ABS managers more accountable for their duties.

Based on the preceding analysis, two major reasons for the increasing of enterprise ABS risk events can be summarized. First, ABS issuance adopts Negative List regulations, which leads to less standardized products as new asset types and new firms are removed from the list. With market volume rapidly increasing, more types of underlying assets have emerged while underwriting standards have deteriorated. ABS managers of differing quality also rushed to the market, resulting in low underlying asset management experience, improper cash collection designs, and even embezzlement from supervised accounts. Second, cash flows from fee or toll claims largely rely on the ability of their initial equity holders to continually operate. Therefore, it is hard to ensure bankruptcy remoteness for ABS with these types of cash flows as underlying assets. When initiators encounter difficulties in operations or a liquidity crisis, these ABS products could face heightened risk exposures.

Outlook and Recommendations

As China’s financial reforms and its economic structural transformation deepen, continuing to press ahead with the development of the asset securitization market will have important practical significance. The asset securitization market is expected to enjoy a favorable policy environment; in particular, the policy advantages enjoyed by operations in such areas as nonperforming asset securitization, public-private partnership asset securitization, and residential lease asset securitization will usher in substantial development. But the large volume of outstanding assets in urgent need of restructuring, the urgent demands to move bank assets from balance sheets and provide enterprise financing, and a higher level of investor acceptance have converged to form the foundation for continuing rapid development of the asset securitization market. In the next phase, it is recommended that improvements in system design be accelerated in the following areas, to resolve existing problems and promote market maturity.14

Strengthen Institutions and System of Laws
  • First, press ahead with specialized legislation for asset securitization to build a comprehensive top-level legal framework and standardize, identify, and protect each link in the asset securitization trading process.

  • Second, amend and improve existing regulations that impede the development of securitization. In particular, clarify the legal status of the various types of SPVs in the market to remedy legal loopholes in such areas as bankruptcy remoteness, true sale, and tax neutrality and to offer greater certainty regarding the design of asset securitization.

  • Third, study and introduce fair tax policies for enterprise asset securitization and resolve the problems of double taxation and the lack of legal basis.

  • Fourth, encourage the use of mortgage electronic registration systems as is done abroad, integrating China-specific requirements so that the national financial infrastructure can establish a centralized credit mortgage registration mechanism for registration of ownership, reducing legal risk and simplifying operating procedures.

Increase Secondary Market Liquidity
  • First, make asset securitization products more attractive to investors through such means as lowering any regulation-induced issuance costs and allowing trading mechanisms for pledge-style repurchases of ABS.

  • Second, expand market maker mechanisms; introduce specific regulations and operating guidelines for the operations of ABS market makers to increase trading efficiency; and stimulate the secondary market.

  • Third, improve the valuation system for asset securitization products and promote improvements in the asset securitization yield curve and the establishment of price discovery mechanisms to strengthen links between the primary and secondary markets.

  • Fourth, promote diversification of investor principals by encouraging insurance companies, asset management companies, various types of funds, and a greater number of transactional financial institutions to enter the asset securitization market to stimulate the market.

Comprehensively Strengthen Information Disclosure
  • First, comprehensively increase the transparency and timeliness of information disclosure for asset securitization products by increasing the frequency of disclosure, formulating more meticulous and specific information disclosure requirements, and strengthening ongoing information disclosures.

  • Second, in keeping with the general direction of information disclosures for asset securitization, adopt transaction-based disclosure for major categories of underlying assets, while also refining the information disclosure requirements for innovative products, to provide investors and regulators with ample and effective decision-making information and guard against potential unrecognized risk.

  • Third, increase normalization, standardization, and machine-readability of information disclosures to satisfy query and analysis requirements of third-party valuation institutions and promote information symmetry.

Improve Credit Rating Standards
  • First, strengthen government supervision and self-regulation of credit rating agencies and standardize the operations of rating agencies; ensure the independence of credit rating agencies, the analytical clarity of rating methods, and the fairness of rating results; and establish an accountability system to clarify the responsibilities that rating agencies should assume for the ratings they provide. Encourage the adoption of the International Organization of Securities Commissions credit rating agency code of conduct (IOSCO 2008).

  • Second, guide rating agencies to study mature technologies abroad and apply them in accordance with national conditions in China. Promote innovative thinking and technological advances to improve rating accuracy, which will in turn increase the international influence and acceptance of domestic rating institutions.

Promote Interconnection and Interoperability of Markets
  • First, promote the circulation of asset securitization products in both the interbank market and the exchange market by improving policies related to cross-market issuance, custody transfers, and trade transfers to attain the coordinated development and complementary advantages of the two market systems and mitigate the abuses brought about by market segmentation.

  • Second, in keeping with market development patterns and international trends, explore ways to advance centralization and integration of the custody and clearing infrastructure and achieve interconnection and interoperability of the interbank and exchange markets through integration in back-office procedures to increase the effectiveness, transparency, and risk control in the asset securitization market.

  • Third, centralize registration and standardize information disclosure requirements for entrusted loan, internet loan, and microfinance loan asset-backed securities to realize better overall supervision and promote steady development of these credit asset securitization products.

Strengthen Risk Identification and Control
  • First, clarify the qualified types of securitized assets and structures to avoid deviating from the benefits they bring to the real economy and triggering market risks as the result of “over-securitization” of assets; monitor the structural design of products so that the underlying assets are of high credit quality to ensure healthy development of the market and appropriate pricing of their risks.

  • Second, strengthen full-process risk identification and management, including prudently grasping the risks originating from underlying assets, improving internal and external credit enhancement mechanisms, strengthening project information disclosures and follow-up management, supervising the due diligence of intermediary institutions, implementing investor protection clauses, increasing the risk awareness of investors, and fostering a sophisticated market opinion environment.

  • Third, encourage the application of advanced technology to manage asset securitization risk, for example, by further studying and enriching risk hedging instruments, continually improving market risk indicators and risk-forecasting models, and strengthening the identification and dynamic measurement of credit risk.

  • Fourth, enhance macroprudential regulation with the asset securitization market in mind. As the global financial crisis has shown, many microprudential regulations do not take into account systemic risks. The financial sector and the real sector could be more vulnerable to the increasing interconnectedness of markets, including through securitization channels. Certain macroprudential indicators thus could be considered when monitoring the risks in the asset securitization market. In particular, early warning mechanisms should be established to tackle credit quality deterioration and funding liquidity risks at an early stage.

Conclusions

In addition to its credit bonds, a market for ABS has emerged in China. Since the 1990s, the country’s financial institutions and regulatory agencies have actively studied asset-backed securitization. Pilot projects were formally launched in 2005. While the market expanded in the subsequent three years, in light of the global financial crisis, market activity was suspended in 2009. It was only in 2012 that pilots resumed, and new rules and regulations were introduced (such as dual-rating requirements) to strengthen risk control. At the end of 2014, the issuance of ABS changed from an approval-based to a registration-based system. Since then, the market has entered a new stage of development and has grown rapidly.

The types of underlying assets have been expanded and the pool of investors has grown increasingly diverse. The market now plays an important role in serving the real economy, reviving illiquid assets, and promoting inclusive finance. Nevertheless, the market still has a lot of room to develop, given the large size of the country’s bank credit assets, strong corporate financing needs, and a supportive policy environment.

Compared with mature markets in countries such as the United States, ABS have had a late start and important areas remain to be developed. Apart from the need to strengthen legal frameworks to close loopholes, market liquidity needs to be increased by promoting market makers and product valuation systems and expanding the diversity of investors. Information disclosure should also be strengthened comprehensively to improve transparency, timeliness, and standardization. At the same time, rating agencies should strengthen self-discipline, standardize rating operations, and improve rating capacity; and the coordination and integration of custody and settlement infrastructures should be explored to promote efficient market interconnectivity.

References

    AyotteK. andS.Gaon. 2005. “Asset-Backed Securities: Costs and Benefits of Bankruptcy Remoteness.” Review of Financial Studies24 (4): 1299335.

    `GerardJr.AsliDemirgüç-Kunt andEdward J.Kane. 2010. “The 2007 Meltdown in Structured Securitization: Searching for Lessons, Not Scapegoats.” World Bank Research Observer25 (1February): 12555.

    International Monetary Fund (IMF). 2009. “Restarting Securitization Markets: Policy Proposal and Pitfalls.” Chapter 2 Global Financial Stability Report. Washington, DCOctober.

    International Organization of Securities Commissions (IOSCO). 2008. “Code of Conduct Fundamentals for Credit Rating Agencies.” Report of the Technical Committee of IOSCO May.

The interbank market is an over-the-counter market used for trading bonds and other fixed income securities by institutional investors and regulated by the Peoples’ Bank of China. The exchange market trades more types of securities, is open to other types of investors, and publishes trading prices, among other information.

For some types of securities, the regulator needs to verify the existence and reliability of the underlying assets (so-called penetrating supervision).

Ayotte and Gaon (2005) provide a more detailed explanation of the costs and benefits of bankruptcy remoteness.

The CCB proposed using the “trust model” to launch an individual mortgage securitization pilot in China, which puts the assets into a “trust,” and CDB proposed drawing upon the experience of the Federal National Mortgage Association (Fannie Mae) in the United States to issue specialized mortgage-backed securities to purchase commercial bank mortgage loans.

Despite the publication of the Notice, uncertainties still existed about the legal validity of the special asset management plan as the SPV.

Of this amount, the issue size totaled RMB 7.2 billion in 2005, RMB 11.6 billion in 2006, RMB 17.8 billion in 2007, and had grown to RMB 30.2 billion by 2008.

Of this amount, the issue size totaled RMB 10.080 billion in 2005 and RMB 16.421 billion in 2006.

The China Securities Regulatory Commission approved five securities credit rating agencies: China Chengxin, Shanghai New Century, Pengyuan Credit Rating, Dagong Global Credit Rating, and China Lianhe Credit Rating. The People’s Bank of China approved six interbank bond credit rating agencies: China Chengxin, Dagong Global Credit Rating, Shanghai New Century, China Lianhe Credit Rating, Golden Credit Rating International, and China Bond Rating Company.

The Notice required originating institutions to hold a certain proportion of the lowest-rated ABS for each asset securitization product issued; in principle, this proportion was not to be less than 5 percent of the entire ABS issue size for a single issue.

Credit ABS are issued on the interbank market. To issue Credit ABS products, issuers should first complete the fling process of the product at CBIRC, and then register at PBC before issuing. Enterprise ABS are issued on the exchange market. To issue Enterprise ABS, issuers should seek the approval from the Exchange, provided that the products are not listed on the Negative List released by the Asset Management Association of China (AMAC).

Information Disclosure Guidelines for Asset Securitization Operations of Securities Companies and Subsidiaries of Fund Management Companies and Due Diligence Guidelines for Asset Securitization Operations of Securities Companies and Subsidiaries of Fund Management Companies.

Including the Fuyuan 2017 Phase 2 Personal Auto Loan Asset-Backed Securities issued by Ford Automotive Finance (China) Limited in August 2017, and the Xingyuan 2018 Phase 1 Personal Residential Mortgage Asset-Backed Securities issued by Industrial Bank in April 2018.

Chinese rating agencies have not yet been evaluated relative to the International Organization of Securities Commissions’ code of conduct for credit ratings—a global standard for credit rating agencies.

See IMF (2009) for a review of pitfalls that led to the fall in securitization in the United States and policy change to restart these markets on a sounder footing.

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