Securitisation 2025

CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm

1. Specific Financial Asset Types 1.1 Common Financial Assets Credit Asset Securitisation In China, asset securitisation can be roughly divided into two types based on the nature of the originator: credit asset securitisation and business asset securitisation. In a “credit asset securitisation”: • the originators are licensed financial institu - tions (mainly credit institutions); • the securities are issued on the China Inter - bank Bond Market (CIBM); and • the underlying assets of the securitisation are limited to credit assets, including corpo - rate loans, small and micro-enterprise (SME) loans, personal residential mortgage loans, personal consumer loans, auto loans, credit card assets, financial leasing debt claims and non-performing loans. Business Asset Securitisation The other type of securitisation is known as a “business asset securitisation”. In a business asset securitisation: • the securities are issued on the CIBM or listed on stock exchanges; • the originators are mostly non-financial insti - tutions; and • the commonly known underlying assets include small loans, financial lease debt claims, factoring financing claims, supply chain payables, rights of return related to infrastructure and public utilities, various kinds of accounts receivable, commercial mortgage loans, securities margin financing claims, trust beneficial rights and intellectual property.

In recent years, consumer loans and SME loans extended by trust companies on popular inter - net platforms have become a growing part of the field of business asset securitisation. As trust companies are not qualified as origina - tors of credit asset securitisations, these assets can only be structured through business asset securitisations. 1.2 Structures Relating to Financial Assets Credit Asset Securitisation A credit asset securitisation adopts a special purpose trust (SPT) as the issuance vehicle, and the trustee must be a trust company with special permission to undertake such business. The basic structure is as follows: • the originator, as the settlor, entrusts its legal - ly owned credit assets (underlying assets) as trust property to a trustee, in order to estab - lish an SPT; • the trustee (as issuer) issues asset-backed securities (ABS) representing the beneficial rights in the trust to the investors, and pays the principal, interests or yields of securities from the cash flows generated by the trust property; • the lead underwriter assembles an underwrit- er syndicate to underwrite the securities; • the trustee engages a servicer (usually the originator) to provide daily collection, man - agement and other services for underlying assets; • the trustee engages a fund custodian to pro - vide the fund custody services in respect of the collections generated by the trust prop - erty; and • the trustee engages the China Central Depos - itory & Clearing Co, Ltd. (CCDC) as securities depository and paying agent for the securi - ties.

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