Another 2008?
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| Lots of money: A clerk counts banknotes at a rural commercial bank in Ganyu county, Jiangsu province.[Photo / ] |
By expanding a pilot program for securitizing credit assets, could China's own subprimemortgage market be at risk?
The United States is home to a mature system of financial derivatives in which loans arepackaged into securities and unleashed onto the market. These days, the practice is gainingmomentum here in China.
At the State Council executive meeting hosted by Premier Li Keqiang on August 28, adecision was made to further expand the pilot program for securitizing credit assets, whilestrictly controlling risks. A major push factor behind the campaign may be the liquiditycrunch in China's banking sector at the end of June (for more information, please refer toissue No. 27).
Lu Zhengwei, chief economist of Industrial Bank Co Ltd, said the popularization of creditasset securitization will motivate China's financial industry to liquidize remnant assets andbetter distribute its financial resources, all the while shoring up the real economy. Besides,using new capital properly and revitalizing existing assets make up the core of Premier Li'sbelief that the financial industry must be better used to support the real economy.
Start up
Credit asset securitization, though playing an important role in the developed world, is stillin its infancy in China.
China started allowing credit asset securitization on an experimental basis in March 2005.A total of 11 domestic financial institutions issued asset-backed securities products worth66.78 billion yuan ($10.91 billion) between 2005 and 2008, according to the People's Bankof China, the central bank.
Affected by the 2008 US subprime mortgage crisis and the global financial crisis, the pilotprogram struck a reef in 2009. It was not resumed until 2011, when six financialinstitutions issued ABS products worth 22.85 billion yuan ($3.74 billion).
Thanks to the pilot program that has lasted for eight years, a basic system of credit assetsecuritization has been established, with the issuance and trading of ABS products runningsmoothly and the initiators and investors becoming increasingly diversified, said the PBC.
However, compared with the United States, China's credit asset securitization is still in itspreliminary stages. Statistics from some American financial institutions show that in thewake of the 2008 subprime crisis, the value of ABS products issued in the United Statesslumped from its peak of $2.9 trillion in 2006 to $1.5 trillion before the market began torecover gradually. The value of ABS products issued in 2012 reached $2.2 billion, up 26.9percent year on year, accounting for 32.3 percent of bonds issued during the same period.The value of all existing ABS products stood at $9.9 trillion in 2012, making up 25.8percent of existing bonds.
In stark contrast, at the end of March 2013, the value of existing ABS products in Chinawas a mere 27.8 billion yuan ($4.54 billion), while the value of deposited bonds was 26trillion yuan ($4.25 trillion). Yuan-denominated loans reached 66 trillion yuan ($10.78trillion).
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（Editor：LiXiang、Zhang Qian）
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