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ergence of Chinese banking laws. Subsection II.D addresses why banking reform is imperative for China’s economic and social stability, and it concludes with current issues faced by the Chinese banking industry. Part III and subsection III.A examine asset-backed securitization as a possible solution for Chinese state-owned banks. Subsection III.B addresses the regulatory concerns unearthed by U.S. subprime mortgage crisis. Subsections III.C, III.D, and III.E compare and contrast the legal framework for securitization in China and the U.S. and analyze the risk of similar crisis in China. Section III.F explores possible alternative forms of securitization. Finally, Part IV concludes with recommendations for future regulation given the close relationship between China’s central government, SOEs, and state-owned banks.
6 Id.
7 Daniel L. McCullough, Emerging Financial Markets: Feeling The Stones: Measuring the Potential of Deposit Insurance in China Through a Comparative Analysis, 11 N.C. BANKING INST. 421, 421 (2007).
8 See, Dobson & Kashyap, supra note 5.
2008 DEVELOPING SECURITIZATION LAWS IN CHINA 567
II.
Transformation of Chinese Banks
A.
“Qian Zhuang” or the Government’s Cashier?
Traditionally, banks in China are called “qian zhuang,” which literally translates to “where the money resides” or “a place where money is deposited and lent and a profit is made.”9 While the word artfully captures what most of us think a bank’s general purpose is, large Chinese banks are state-owned and their purpose is to broadly serve the central government rather than simply to make profits.10 Until China took steps to reform its banking system in the late 1970s, Chinese banks “operated more like a government administrative agency to perform the government’s economic and monetary policies”11 as the central government’s “bookkeepers and cashiers.”12 In recent years, independent banks have emerged, but China’s largest banks remain state-owned.13 The relationship between state-owned banks’ and the central government (and consequently with the SOEs) are at the root of Chinese banks’ current non-performing loan problem.14 Policy lending—“lending based on policy objectives or political criteria and connections rather than creditworthiness”15—continues to guide Chinese banks.16
China’s first bank, People’s Bank of China (“PBC”), was created contemporaneously with the birth of the People’s Republic of China in 1949.17 PBC served as China’s only deposit taking and lending institution, as well as, the country’s central bank from 1949
9 Andre Xuefeng Qian, Transforming China’s Traditional Banking Systems Under the New National Banking Laws, 25 GA. J. INT’L & COMP. L. 479, 479 (1996).
10 Dobson & Kashyap, supra note 5.
11 Qian, supra note 9, at 479; see also Weitseng Chen, Legal Implications of a Rising China: WTO: Time’s Up for Chinese Banks—China’s Banking Reform and Non-Performing Loan Disposal, 7 CHI. J. INT’L L. 239, 242 (2006).
12 Qian, supra note 9, at 481.
13 Kent Matthews, Jianguang Guo, & Nina Zhang, Non-Performing Loans and Productivity in Chinese Banks: 1997-2006, 4 (Cardiff Business School Working Paper Series E2007/30).
14 See Dobson & Kashyap, supra note 5, at 6.
15 Id.
16 Id.
17 Qian, supra note 9, at 480.

 

 

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