China expands asset securitization to boost real economy

BEIJING, May 14 -- China is expanding its asset securitization pilot program so that banks can channel more money to areas where it's most needed.

Credit asset securitization (CAS) worth 500 billion yuan ($81.8 billion) is in the pipeline, according to a statement released after a State Council executive meeting on Wednesday.

CAS is a process where banks' credit assets with poor liquidity and predictable income are sold in the form of securities in the capital market to generate liquidity and redistribute capital.

Money generated from the scaled-up CAS operation will be mainly used in refurbishing rundown housing, water projects and extending railways in central and west China, the State Council said.

Securitization in China officially started when financial regulators launched a pilot program in 2005, allowing banks to package loans into tradable securities.

The program gained little traction in the first few years and was shelved with the onset of the global financial crisis in 2008 as products like mortgage-backed securities were blamed for causing havoc.

However, CAS in China has grown rapidly since the pilot program was restarted in 2012, on the back of government encouragement in the shape of more policy support that has streamlined operations. For example, a registration-based issuance replaced the previous troublesome deal-by-deal approval system.