The Hot Zone
China's newly announced air defense identification zone over the East China Sea aims to shore up national security
Current Issue
· Table of Contents
· Editor's Desk
· Previous Issues
· Subscribe to Mag
Subscribe Now >>
Expert's View
Market Watch
North American Report
Government Documents
Expat's Eye
Photo Gallery
Reader's Service
Learning with
'Beijing Review'
E-mail us
RSS Feeds
PDF Edition
Reader's Letters
Make Beijing Review your homepage
Hot Links

cheap eyeglasses
Market Avenue

Cover Stories Series 2013> G2 Arrangement Unlikely> Archive
UPDATED: September 22, 2013 NO. 39 SEPTEMBER 26, 2013
Another 2008?
By expanding a pilot program for securitizing credit assets, could China's own subprime mortgage market be at risk?
By Lan Xinzhen

It will be conducive to restructuring credit assets, encouraging reforms in key sectors like railway and shipbuilding, and intensifying credit support to projects like government-subsidized housing.

Commercial banks will distribute their core capital in a more efficient way, and the capital market can better finance the real economy.

It will also push commercial banks to shift from an expansion-driven operation model, reduce financing costs and boost intermediate business income.

Finally, investors will be provided with more alternatives to distribute financial assets.

Lian Ping, chief economist of Bank of Communications, said that the expansion of the pilot program would enhance asset liquidity, for banks can resell loan assets to other investors and have more funds to inject into assets with higher rates of return. "With the credit asset securitization, the quality of bank assets will be improved, and fewer restrictions will be imposed on the assets-to-securities process. In this way, banks will face less pressures of replenishing capital," Lian said.

Moreover, banks can earn non-interest income by reselling loan assets for themselves or on behalf of other financial institutions, which will improve revenues.

From a macro perspective, the lending quota after selling securitized assets can be granted to the weaker parts and key fields of the real economy, especially in small and micro-sized businesses, and in agriculture and infrastructure. By the end of July, the balance of yuan-denominated loans had amounted to 68.78 trillion yuan ($11.24 trillion), two thirds of which, or 45.85 trillion yuan ($7.49 trillion), could be securitized, Lian argued. Even securitizing a small portion can result in impressive yields.

Risk prevention

Credit asset securitization is a double-edged sword, just as the 2008 subprime crisis has shown. Zhao Xijun, a professor from Renmin University of China, holds that in the context of an economic slowdown, loans in some areas were faced with default risks. Therefore, identifying the quality of ABS products is key.

As to how to ensure China's credit asset securitization would not incur a subprime crisis like in the United States, the PBC suggests including high-quality credit assets into the program.

Currently, credit assets that may undergo securitization include credit loans, guarantee loans, small and micro-sized business loans and auto loans.

The State Council executive meeting on August 28 also 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.

Wang Guogang, an expert from the Institute of Finance and Banking under the Chinese Academy of Social Sciences, said enterprises should be given enough freedom in choosing credit asset securitization as a financing channel, but he is worried that local governments may interfere in the process. Since the Central Government is trying to tighten the issuance of local bonds, local governments may resort to re-securitization to get new funds, which could further plague these governments, many of which are faced with crippling debt. Strict precautions should also be taken against excessive securitization; otherwise China could face a U.S.-style subprime mortgage crisis, said Wang.

Furthermore, the ability of enterprises to repay decides the quality of ABS products. Information about ABS products, such as gains and losses, defaults and risks, should be published regularly, said Wang.

"That way, investors can spot and guard against risks by analyzing the quality of ABS products as well as referring to the credit rating of issuers."

Email us at: lanxinzhen@bjreview.com

   Previous   1   2  

Top Story
-Protecting Ocean Rights
-Partners in Defense
-Fighting HIV+'s Stigma
-HIV: Privacy VS. Protection
-Setting the Tone
Related Stories
-Economic Shift Underway
-Decentralizing the Economy
Most Popular
About BEIJINGREVIEW | About beijingreview.com | Rss Feeds | Contact us | Advertising | Subscribe & Service | Make Beijing Review your homepage
Copyright Beijing Review All right reserved