China has announced plans to launch a new pilot securitization program that will allow some Chinese commercial lenders to securitize financial assets. Recent news reports indicate that the trial securitization program will involve up to $7.9 billion of securitized assets. Eligible assets are likely to include, among others, loans to local Chinese government financing vehicles, which would address what has been an area of significant concern. One academic advisor to the People’s Bank of China noted that asset securitization could help Chinese banks transform illiquid assets into liquid assets.

“Based on the results of the pilot securitization program, we would gradually promote asset securitization,” said Jin Qi, assistant governor of the People’s ank of China. According to recent news reports, it will probably be another two years before securitizations directed at foreign investors will be permitted in China...