Study On The Effect Of Securitization In China

There have been many literatures studying about securitization of Chinese market in the direction of legal system, accounting, tax system, trading structure, and case studying. While most of them are theoretical researches, studies about quantitative demonstration or analysis combined with regulations and specific contract clauses are still rare.Therefore, this paper will study the operating effect of domestic securitization based on the literatures before, and will aim at analyzing issues concerning with the realization of true sales and risk isolation, tax, liquidity of the secondary market, judgment of the stock market and the impact of the financial condition once the security issued.In the meanwhile, as for the innovation of this paper:in the first hand, it combines practical contract clauses and regulations, and factors including accounting, tax, law, and liquidity to judge the real operating condition of securitization. Secondly, samples used in the demonstration study expand not only in the varieties of the products, but also in the length of time when compared with former studies. Lastly, in the part of my quantitative demonstration, this paper studies not only the impact on comprehensive financial performance, but also judgment of the issuer’s value in the future by the stock market.Specifically, in the second chapter, I will summarize the current situation of securitization in China.In the first hand, as for the definition of securitization, this paper will analyze the different statements of CBRC (China Banking Regulatory Commission) and CSRC (China Securities Regulatory Commission), and summarize the nature of securitization which is "improving credit and attaining the result of risk isolation by recombining assets based on the cash flow in the future" hided behind the regulations. What’s more, both of the regulators demand that the underlying assets should be predictable and homogenous. Besides, considering the fact that SPV is not compulsively demanded to reach the consequence of risk isolation when it comes to ABN, it is not in the range of the object studied in this paper.Secondly, history of the development of securitization will be summarized in the recent years:since the first ABS issued in 1992, it experienced two rounds of trials in 2005-2006 and 2007-2008. Owing to the financial crisis broke out in 2008, it paused since then and restarted until 2011. Through the amount issued had been sharply risen in 2014, it still takes a very small percentage in the whole bond market.Lastly, as for the classification of ABS, it could be roughly separated into securitization of credit assets and securitization of enterprise assets. While in a more specific view of the classification of underlying assets, it could be divided into products based on corporation debt or loan which accounts in a proportion nearly 77%.In the third chapter, sector one will first analysis the judgment of real sale, it will be discussed from three angles including legal logic, regulations of CBRC and minister of finance (there does not exist regulations of CSRC up to now), and the key issue will be the boundary of real sale and guaranteed loan.The second sector is about the legal foundation of risk isolation of ABN, which is the form of SPV that ensures the independence of the underlying assets by the form of trust.Based on the theories and legal regulations above, sector three will study the realization of risk isolation in practice. And it will draw a conclusion that concerned with some special clauses in contract, the effect of risk isolation does not really play its part In ABN in practice.As for the definite situation, securitization of enterprise assets can be under qualified of the standard of risk isolation since cases like:ownership of the underlying asset has not been transferred, the initiator still controls the power of managing of the underlying assets, the initiator is responsible of balance complement or repurchase the underlying assets, the initiator holds a high proportion of subordinated interest or sets a high ratio of pledge. There are two products distributed by Zhong Xin Securities take the form of double SPV, while they still do not segregate risk for the responsibility of complement.Securitization of credit assets relatively have more homogenous underlying assets, more standard operation, and more strict regulations. It is compulsive for the initiator to hold certain proportion of the subordinated interest. The measures which will largely affect the effect of risk isolation are complement obligation including liquidity support and high proportion of subordinated interest.What’s more, the affection some particular risk control measures will have to corporation’s cash flow and operation will also be discussed when it comes to the securitization of enterprise assets, such as the negative change of corporation’s long term credit rating, risk of reinvestment of the underlying assets, other restrictions of underlying assets’right. Considering of the fact that the order of different credit increasing measures may differs in different contracts, it should be studied owing to different cases.In the third section, revenue will be studied. Since the cost of issuing an ABS is not only affected by supply and demand condition of the market, but also largely influenced by revenue considering of the large amount of each ABS and the various participants and trading procedures related. The main revenue categories are stamp tax, income tax, and business tax. And the key concern is the problem of dual taxation.Under the recent tax regulations about ABS’s revenue, it should be completed in the range of securitization of enterprise assets and individual investors, the boundary of real sale should be defined, and the nature of ABS should be regulated to be equity instrument or debt security.The fourth sector is about the liquidity of ABS. In the recent legal environment, ABS’s investors are required of certain qualifications, whereas it can be provided with the service of market making by agencies like security companies. In the level of market data, the trading volume and turnover rate were relatively high before year 2007, and then the data went down after the trial of ABS stopped in year 2008, and did not rise up again until recent years. Whereas the figure is still very small when compared with the whole bond market.Lastly, other imperfections in practice are discussed in sector five, such as the notice problem of debt transferring, the problem of mortgage transferring and register alteration, the definition standard of legal relationship.Chapter four is the quantitative analysis and empirical part of the paper.First of all, the question of "whether the issuing of ABS is good news in the stock market" is studied with event study analysis. It turns out that the issuing is positive to the change of stock price, which means the market is considering the issuing as good news with the initiator. And it is prevalent that the stock price has already risen before ABS issued, which indicated the message is leaked before hand, whereas most of the increasing of the stock price still happens after the issuing.Secondly, "whether the comprehensive financial condition will be improved after the issuing of the ABS" is analyzed with factor analysis. It has been showed in the result that in the short term (in half a year’s standard),13 out of 17 samples turn out to be positive result, especially for the stock-holding banks. Whereas in the long term (in a year’s standard), all of the samples show positive results.The conclusion will be drawn in the fifth chapter, critical issues like the realization of risk isolation, accounting and tax system, liquidity will be briefly judged and concluded, the result of the quantitative study will also be summered.Considering of my poor theoretical analysis and practice, there must be some drawbacks in my paper. I will continue studying and researching in the future, and I will appreciate it very much for the criticism and suggestions of the professors and specialists.