Abstract
E-commerce and FinTech are currently booming in China. The growing consumer market is accompanied by internet finance, by which consumers can easily borrow money from financial institutions online. As a result, the growing risks of financial institutions are of concern to the government and regulatory bodies. Consequently, the securitization market in China is seeing rapid growth that could affect financial stability. Applying FinTech and emerging technologies in securitization might be an effective way to protect against these risks. This paper studies the question of whether China needs a higher standard of information transparency in order to protect against its risks against the background of digital transformation. We analyzed the determinants of securitization in the Chinese banking sector, relying on data on banks for two periods: pre-2017Q4 and post-2017Q4. The main findings of the paper demonstrate that the application of FinTech in China’s banking industry resulted in less information asymmetry. The risk exposure was the most significant determinant in general. Higher risk exposures increased securitization transaction volumes, which reflects securitization with adverse selection problems between the originator and investors. Liquidity and profitability, as important determinants indicating the moral hazard problem, also affected securitization pre-2017Q4, but liquidity and profitability were found to be unimportant determinants after the application of FinTech (the post-2017Q4 period). Moreover, this study finds that the effects of the adverse selection and moral hazard problems varied in different types of banks. Overall, our findings suggest that the Chinese securitization market needs a higher standard of information transparency.
Highlights
E-commerce and FinTech are currently booming in China
(2) this study proposes and explains why the four determinants mentioned above can be used to examine the problems of information asymmetry in securitization
By comparing the outcomes of the determinants at two stages, this study finds that the application of FinTech can reduce information asymmetry in the securitization market dramatically, especially for moral hazards
Summary
E-commerce and FinTech are currently booming in China. The growing consumer market is accompanied by internet finance, by which consumers can borrow money from financial institutions through online platforms. The growing risks of the financial institutions are of concern to the government and regulatory bodies. The securitization market in China has grown rapidly in recent years. Securitization in China has experienced a great increase since 2014, and it is the second-largest securitization market in the world (Hogan Lovells 2019). The main reason for this rapid growth is the simultaneous release by the China Banking Regulatory Commission (CBRC) and the
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