China’s ABS market has pulled off a remarkable recovery since the pandemic, but the real estate credit crunch and other economic risks have forced businesses to seek new avenues for financing, writes Sophia Luo

Amid the twists and turns of pandemic-ravaged 2020, China’s asset-backed securities (ABS) market managed to continue its growth trajectory following a U-shaped recovery.

The market has shown no signs of losing momentum in the first half of this year, with offerings totalling RMB1.3 trillion (USD202 billion), up 45% from the same period last year. Specifically, credit ABS more than doubled in the past year – with 105% year-on-year growth thanks to a low base because of slower issuances during the pandemic in 2020 – making up 31% of total ABS issuances this year.

ABS backed by corporate debt increased by 20% compared with the same period last year, accounting for 50% of the total, while asset-backed medium-term notes (ABNs) jumped by 53% from the first half of 2020, contributing to 19% of total issuances.

The issuance of standardised ABS products amounted to nearly RMB2.9 trillion last year, representing a 23% year-on-year increase. The market inventory by the end of 2020 reached about RMB5.2 trillion, translating into growth of 24% compared with the previous year, according to the 2020 Asset Securitisation Development Report published by China Central Depository & Clearing (CCDC).

Since the launch of the Administrative Measures for the Pilot Securitisation of Credit Assets in 2005, China’s ABS market has taken a hard road to becoming the world’s second-largest.

Product name Deal value (RMB100 million) Date of value Sponsor/originator Law Firm
Nongying Huiyu Residential Mortgage-Backed Securitisation Series 2021-1 Tranche 200.15 12/1/2021 Agricultural Bank of China Global Law Office
Gongyuan Yiju Residential Mortgage-Backed Securitisation Series 2020-3 Tranche 156.16 29/9/2020 Industrial and Commercial Bank of China King & Wood Mallesons
Feichi Jianpu Micro and Small Enterprises Collateralised Loan Obligation Series 2020-2 Tranche 150.12 2/12/2020 China Construction Bank Zhong Lun Law Firm
Feichi Jianpu Micro and Small Enterprises Collateralised Loan Obligation Series 2020-3 Tranche 147.72 9/12/2020 China Construction Bank Zhong Lun Law Firm
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2020-1 Tranche 144.88 30/10/2020 Industrial and Commercial Bank of China Zhong Lun Law Firm
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2020-3 Tranche 142.91 13/11/2020 Industrial and Commercial Bank of China Zhong Lun Law Firm
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2020-4 Tranche 142.88 24/11/2020 Industrial and Commercial Bank of China King & Wood Mallesons
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2020-2 Tranche 142.84 6/11/2020 Industrial and Commercial Bank of China King & Wood Mallesons
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2021-3 Tranche 136.93 19/5/2021 Industrial and Commercial Bank of China Dentons, Zhong Lun Law Firm
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2021-1 Tranche 134.92 26/3/2021 Industrial and Commercial Bank of China Zhong Lun Law Firm
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2021-2 Tranche 134.47 9/4/2021 Industrial and Commercial Bank of China King & Wood Mallesons
Feichi Jianrong Collateralized Loan Obligation Series 2020-2 Tranche 132.02 26/11/2020 China Construction Bank SG & Co Lawyers
Xingyuan Residential Mortgage-Backed Securitisation Series 2021-1 Tranche 131.34 18/3/2021 Industrial Bank Dentons
Jianyuan Residential Mortgage-Backed Securitisation Series 2020-11 Tranche 131.02 24/11/2020 China Construction Bank King & Wood Mallesons
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2021-4 Tranche 125.4 6/8/2021 Industrial and Commercial Bank of China SG & Co Lawyers
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2020-5 Tranche 124.98 18/12/2020 Industrial and Commercial Bank of China Zhong Lun Law Firm
Gongyuan Leju Residential Mortgage-Backed Securitisation Series 2020-6 Tranche 124.96 22/12/2020 Industrial and Commercial Bank of China King & Wood Mallesons
Jianyuan Residential Mortgage-Backed Securitisation Series 2020-10 Tranche 123.29 30/10/2020 China Construction Bank SG & Co Lawyers
Jianyuan Residential Mortgage-Backed Securitisation Series 2021-2 Tranche 122.89 28/1/2021 China Construction Bank SG & Co Lawyers
Zhongying Wanjia Residential Mortgage-Backed Securitisation Series 2021-3 Tranche 121.03 18/5/2021 Bank of China Dentons

Time period: 1 September 2020 – 31 August 2021
Source: CN-ABS

Product name Deal value (RMB100 million) Date of value Sponsor/originator Law Firm
Cinda-Zhiyuan Asset-Backed Securities Special Programme (Issue No. 5) 101.05 9/3/2021 China Cinda Asset Management FenXun Partners
Cinda-Zhiyuan Asset-Backed Securities Special Programme (Issue No. 7) 100.81 2/4/2021 China Cinda Asset Management FenXun Partners
Huarong-Huayuan Asset-Backed Securities Special Programme (Issue No. 1) 100.76 29/9/2020 China Huarong Asset Management Zhong Lun Law Firm
Cinda-Zhiyuan Asset-Backed Securities Special Programme (Issue No. 9) 100.32 10/6/2021 China Cinda Asset Management FenXun Partners
Cinda-Zhiyuan Asset-Backed Securities Special Programme (Issue No. 8) 100.12 21/5/2021 China Cinda Asset Management FenXun Partners
CITIC Xinyuan Asset-Backed Securities Special Programme (Issue No. 1) 100.1 25/8/2021 Shaanxi Intl Trust Zhong Yin Law Firm
Cinda-Zhiyuan Asset-Backed Securities Special Programme (Issue No. 1) 99.98 27/10/2020 China Cinda Asset Management FenXun Partners
Cinda-Zhiyuan Asset-Backed Securities Special Programme (Issue No. 2) 99.94 17/11/2020 China Cinda Asset Management FenXun Partners
Cinda-Xinrun 2020-I-6 Asset-Backed Securities Special Programme 99.94 2/9/2020 China Cinda Asset Management FenXun Partners
Cinda-Zhiyuan Asset-Backed Securities Special Programme (Issue No. 3) 99.92 28/1/2021 China Cinda Asset Management FenXun Partners
Cinda-Zhiyuan Asset-Backed Securities Special Programme (Issue No. 4) 99.68 21/4/2021 China Cinda Asset Management FenXun Partners
Huarong-Huayuan Asset-Backed Securities Special Programme (Issue No. 2) 99.09 16/12/2020 China Huarong Asset Management Zhong Lun Law Firm
Cinda-Mingyuan Asset-Backed Securities Special Programme (Issue No. 1) 98.89 15/7/2021 China Cinda Asset Management FenXun Partners
Cinda-Mingyuan Asset-Backed Securities Special Programme (Issue No. 2) 97.4 11/8/2021 China Cinda Asset Management FenXun Partners
Ping An-Guangzhou Communications Investment Guangzhou-Heyuan Expressway Infrastructure-Backed Securities Special Programme 91.14 8/6/2021 Guangzhou Communications Investment Group Han Kun Law Offices
CICC-Hesheng-Beijing Chaoyang Heshenghui Asset-Backed Securities Special Programme 80 23/7/2021 Beijing Yihai Yinuo Investment Management Zhong Lun Law Firm, Fangda Partners
Dongfang Yuxiao Asset-Backed Securities Special Programme (Issue No. 7) 78.89 12/11/2020 China Orient Asset Management Zhong Lun Law Firm
Dongfang Yuxiao Asset-Backed Securities Special Programme (Issue No. 17) 75.15 24/8/2021 China Orient Asset Management Zhong Lun Law Firm
Dongfang Yuxiao Asset-Backed Securities Special Programme (Issue No. 16) 73.74 22/6/2021 China Orient Asset Management Zhong Lun Law Firm
Xuri Asset-Backed Securities Special Programme (Issue No. 4) 73.09 17/11/2020 China Orient Asset Management Zhong Lun Law Firm

Time period: 1 September 2020 – 31 August 2021
Source: CN-ABS

Li Mingyue, a partner at Tian Yuan Law Firm’s Beijing office, says the conventional business of asset securitisation has hit a bottleneck in the post-pandemic era for two main reasons. On the one hand, China’s overall economy has grown at a slower pace in the past two years due to the deadly virus and an unstable international investment climate. Financing demand from the real economy, including the needs of the ABS market, has experienced a deceleration in growth.

On the other hand, the rise in debt defaults has become a regular thing in the bond markets, which has had an impact on the risk appetite of investors and the investment side of the ABS market.

Add to this the real estate industry, which takes a lion’s share of underlying assets of the ABS market and has borne the brunt of unprecedented regulatory tightening. The securitisation of real estate assets involving individual house mortgage loans has been inevitably affected by total issuances’ downward trajectory compared with the previous year.

However, Li stresses that, compared with countries and regions known for their established and sophisticated ABS markets, asset securitisation in China is still in its early days. The new round of industry-wide transformation and exploration is well underway, and corresponding short-term challenges can hardly be avoided. “We cannot jump to the conclusion that the industry has reached the limit of growth at the current stage,” she says.

Riding high on nationwide undertakings to strengthen the ability of financing to serve the wider economy, Li says there is potentially huge financing demand from the real economy to be unlocked. Many companies, especially private enterprises with other financial channels subject to certain restrictions, will seek to raise funds from the ABS market. When choosing the investment targets, investors will also switch their focus further from corporate credit rating to the quality of underlying assets.

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