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People's Daily Online>>China Business

Trial of asset securitization

By Wang Xiaotian (China Daily)

15:26, March 09, 2012

The headquarters of the People's Bank of China in Beijing. The PBOC is likely to launch a pilot program that allows some commercial lenders to securitize assets. The trial could involve a securitized quota of 50 billion yuan ($7.9 billion). (Photo/China Daily)

Reports: The program could involve securitized quota of $7.9 billion

China is conducting a new pilot program that allows some commercial lenders to securitize assets, said a senior central bank official on Wednesday.

"Based on the results of the pilot program, we would gradually promote asset securitization," said Jin Qi, assistant governor of the People's Bank of China. She declined to give further details.

Securitization is a process that involves packaging the anticipated cash flows of instruments such as loans or receivables into asset-backed securities, which are then sold to investors. It is one of the ways in which assets can be hedged in a derivative market.

Previous reports in the domestic media have said that the trial would involve a securitized quota of 50 billion yuan ($7.9 billion).

This trial is likely to expand the pool of allowable assets to include loans to local government financing vehicles and small- and medium-sized enterprises.

In 2005, the government announced a pilot plan that allowed China Development Bank Corp to securitize its loan assets and China Construction Bank Corp to securitize its mortgage loans.

In the following two years, the range of the pilot program broadened to include some joint-stock commercial banks, investment banks such as China International Capital Corp Ltd, some securities firms and other financial institutions.

However, the process was suspended amid the financial crisis, as the government became more prudent about exploring new financial instruments.

Li Daokui, a professor at Tsinghua University and academic adviser to the PBOC's monetary policy committee, said it is wrong to see asset securitization as the root cause of the financial crisis.

"Asset securitization is the road one must follow to achieve modern finance. The key is how to regulate it in a proper manner."

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