Produced by Gracie Zhou for Moody’s Investor Service on March 25, 2019.
Securitization continues to grow as a funding source for the Chinese economy, driven largely by the growing issuance of structured finance deals backed by consumer debt. In 2018, securitization accounted for 4.6% of total debt capital market new issuance for the Chinese economy. This represents a healthy 0.9% increase from 3.7% in 2018. By year’s end, the total value of outstanding securitization notes was $2.7 trillion. China now represents Asia’s largest securitization market and the second largest in the world behind the United States.
The Chinese securitization market is evolving with changing funding needs; consumer debt, especially residential mortgages and auto loans, is a growing focus for the industry. As securitization funds a greater share of consumer debt, the market’s funding of corporate loans continues to diminish. With the Chinese economy shifting from its export and infrastructure investment-led origins, domestic consumption is becoming an increasingly important driver of the nation’s market growth. The debt financing of the securitization industry helps nurture this growth.
Residential mortgage-backed securities issuances reached record levels in 2018, becoming the single largest securitization asset class in the Chinese economy. RMBS issuance represents a growing provider of funding for the housing finance sector. Auto loan asset-backed securities saw similar growth, boosting performance in the auto finance sector. The issuance of credit card ABS and micro-loan ABS fell, and the balance of outstanding collateralized loan obligations continues to decline.
The Chinese securitization sector saw substantial improvement in secondary market liquidity. Policy changes have promoted growing access for foreign investors, creating a larger and more diverse investor base. Stronger regulatory supervision and consumer protections have bolstered confidence in China’s securitization sector, resulting in continued market expansion on all fronts.
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