Market for asset-backed securities could reach 3tr yuan by 2018

Beijing's determined efforts to deleverage China's economy to ward off financial risks could usher in a market for securitised products amounting to several trillion yuan, experts say.

Premier Li Keqiang's cabinet is set to further liberalise the asset-backed securities market, encouraging financial institutions to monetise "remnant assets" to raise fresh funds to expand their businesses, instead of relying on monetary policy easing, which could endanger the fragile financial system.

Mainland authorities used to maintain tight control over the securities, which are assets, or loans, that are pooled and "securitised" - turned into financial instruments that can then be sold to investors.

Regulations were tightened after financial institutions in the United States bundled subprime loans into risky packages sold as top investments, the collapse of which was a major cause of the global financial crisis.

But China's new cabinet under Li's direction made an about-face on the products last year, in the belief that asset securitisation could be an effective source of funding for cash-hungry institutions at a time when monetary tightening was being carried out to deleverage an economy facing a rising risk of debt defaults.

"[Asset-backed securities] could be developed into a market worth trillions of yuan," said Gu Weiyong, chief investment officer of Shanghai Ucon Investment Management.