By Michael Bright, CEO of SFA
Dynamics with the Chinese economy often move so fast it can feel difficult to keep up. But as the Chinese financial system has come of age at lightning speed, it’s time to pay closer attention.
As we saw in 2008, global financial markets are inextricably connected, for better or worse. Engaging with China — the largest global investor in U.S. debt and a country with whom we conduct an enormous amount of trade — and its businesses and government officials is an important part of managing global financial risks and opportunities. With this in mind, SFA is working to become a valuable resource for those trying to better understand developments in the massive and ever-evolving Chinese financial system.
An important area of growth and focus for China has been securitization. In 2013, the Chinese government strategically decided to add dynamism to their financial sector — historically dominated by a few large state-owned enterprise banks — by developing a massive liquid securitization system. At the time, the move was seen a logical next step for the Chinese market if they could achieve the transparency, data and investor base to make it work.
In the past few years, China has made major strides towards this goal. In fact, China’s securitization market is the second largest in the world, second only to the U.S. Today, most Chinese bonds are issued by mainland firms and purchased by mainland investors. However, this won’t last forever. Through various mechanisms for investment and an opening of markets to U.S. data and analytical providers, the internationalization of the Chinese securitization market has already begun, and it will continue to grow in the coming decades.
At SFA, we have built relationships not only with our trade association counterparts in mainland China, but also with the Chinese regulators and financial institutions developing the country’s large securitization infrastructure. As the main voice for securitization in the U.S., we share best practices for risk management, data transparency and trading infrastructure to help prevent past mistakes from being repeated in today’s globally connected economy. In the years to come, our China Securitization Initiative aims to promote increased bilateral communication and learning between participants in our financial systems.
Among our goals:
- Maintain a close eye on developments in the Chinese market, establishing SFA as a resource for those seeking to better understand what is taking place on the mainland;
- Help our counterparts in Beijing (and elsewhere) as they seek to understand global best practices as part of their market development process;
- Serve as a bridge to help policy makers in Washington understand what is transpiring in China so they can learn from and monitor these dynamics;
- Help ensure that everyone in our market understands the importance, scalability and reach of our organization.
Over the past six years, China has demonstrated a sincere commitment to developing a robust securitization market and SFA will remain engaged as this market grows. We are pleased to be a resource for anyone seeking to better understand these important developments and what they could mean for the global economy, and we hope you find our resources helpful and informative.