Who Will Take the Lead in Shaping China's Securitisation Market Model?
34 Pages Posted: 26 Sep 2015
Date Written: September 23, 2015
Abstract
The paper focusses on China’s securitization market which began in 2005. Securitization can change the velocity of money and debt accumulation in the economy. As the Asian Crisis demonstrated, securitization is difficult to contain within borders. It can move quickly across markets in search of asset-pricing irregularities to exploit, and exploiting them. China has laws, regulations and other behavioural norms that differ from other countries where securitization has flourished. These norms are rooted in its own, not Western, culture. This model is not the free-market economic model in other countries where securitization has flourished. Securitization in China entails a borrower of capital (seller) under the instructions of a financial intermediary (arranger) pooling some cash flow-generating assets to make non-recourse securities and getting working capital on acceptable terms when these securities are sold by an intermediary institution (issuer) to buyers (investors). China has two securitization market regulators, the CBRC (China Banking Regulatory Commission) and the CSRC (China Securities Regulatory Commission). This means two distinct markets endowed with different rules, goals and players — in effect, two different games. One is played in the interbank market, the other in exchanges. China’s commercial leaders will be counted on by government to serve the public good, whilst commercial players everywhere will become leaders by translating short-term tactical gains into long-term strategic institutional advantages. If markets are to fulfil their role of allocating resources efficiently, a unified regulatory approach is required, and this needs top-down leadership from government.
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