How the Implementation of Securitization in China Can Avoid the Problems that Caused the Financial Crisis that Arose in the United States

Abstract

In 2008, the subprime mortgage crisis in the United States brought about a global financial crisis. Although there are many complex reasons for the subprime mortgage crisis, the securitization of credit has been determined to be one of the most important reasons for the coming about of the crisis. The implementation of securitization in China, in accordance with the Administrative Rules for Pilot Securitization of Credit Assets issued by the People’s Bank of China and the China Banking Regulatory Commission, as well as current laws and policies, could also bring about the problems that arose in the United States. China’s banks extend loans to state-owned enterprise in accordance with the requirements of the central government, and are not concerned with the ability of these enterprises to make good on their loans, bringing about a moral dilemma. Also, although securitization in China is regulated by certain government agencies, these agencies cannot individually apprise the asset pool of each securitization project and must rely on credit-rating agencies. This can likewise lead to the problems that arose in the subprime mortgage crisis.