Securitization in China: the pilot rules

Author: | Published: 1 Jul 2005
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China's first asset-backed securitization (ABS) legislation has been introduced. The Administrative Measures on Pilot Projects of Credit Assets Securitization promulgated by the People's Bank of China and the China Banking Regulatory Commission became effective on April 20 2005. In connection with the State Council's approval in principle of the two pilot projects, China Development Bank and China Construction Bank, other relevant authorities have or will issue provisional rules to facilitate the launch of these projects.

Although the necessary regulatory infrastructure is being established, these rules should not be expected to solve all the problems associated with the securitization industry. These rules are issued by ministry-level authorities, so they cannot be expected to remove restrictions, or interpret any ambiguities, within higher-level national laws and regulations, such as the PRC security, trust, bankruptcy, and contract laws. Also, these rules only apply to securitization of credit assets originated by Chinese commercial banks. It remains to be seen whether this infrastructure will be consolidated into a uniform securitization law and applied to all asset types and originators. From the perspective of market regulation, these measures have failed to subject the new ABS transactions to the anti-fraud rules specified by the PRC Securities Law. The two different regulatory schemes, one established by People's Bank of China and the China Banking Regulatory Commission, the other operated under the China Securities Regulatory Commission's authority, have raised the spectre of a fragmented market structure, in which similar transaction types are subject to different rules and varying degrees of regulation.

Xusheng Yang