Asset-backed securities and China’s infrastructure financing innovation
On September 29, 2013, Ge Peijian, president of Shanghai Pudong Road & Bridge Construction Co., Ltd., gave a speech in the “Hongru Forum”, sharing his ideas about asset-backed securities (ABS) and China’s infrastructure investment and financing with more than 100 honored guests who attended the meeting.
Recently, the State Council, China’s cabinet, issued a statement to boost urban infrastructure construction. To reach the construction target, the statement clarifies to promote reforms on the infrastructure financing system and the operation system, establishing the reasonable boundary between the government and the market. According to the estimation of the relevant institution, the future 10 years’ new type urbanization will need 40 trillion yuan investment.
Facing the huge demands for infrastructure construction funds, it is especially urgent to raise funds breaking through the various limitations for financing platforms while not increasing local governments’ debt risks. As a company financing directly in the security market and interbank market simultaneously, Ge Peijian, the president of Pudong Road & Bridge Construction, believes that the essence of ABS is “bankruptcy remote and true sale.” As a financing method, the advantages of ABS mainly lie in that it can liquidize remnant assets, speed up asset turnover and promote enterprise operation efficiency. Because of the stabile cash flow and the strong predictability of infrastructure projects, it is suitable to build the underlying asset pool, and therefore infrastructure is the best object for ABS.
However, Ge Peijian also stated several hurdles of ABS in infrastructure construction: first, the legal status of enterprise’ special purpose vehicles (SPV) cannot guarantee the “bankruptcy remote”, especially that infrastructure constructions are mostly involved with government debts; second, the guarantee of the related parties can not realize the credit isolation between products and original stakeholders; third, ABS products still lack liquidity.
From government’s recent statement, Ge pointed out that government was trying to reduce its debts. In this policy trend, there will be a shifting of financing, management, operations and project risks away from public sector. Then, BOT and transferring of state-owned assets may become the main way to provide public services, so related enterprises may pay close attention to the opportunities of BOT and TOT and the state-owned assets acquisition and transfer (involving the parts of public services) on the market.
In the subsequent link of commentary, Zhu Yong, a researcher of the Development Research Centre of Shanghai People’s Municipal Government, pointed out that the innovation of local government’s investment and financing patterns and investment and financing platforms is the most essential connotation of China Model. Zhang Yidong, chief strategic analyst of Industrial Securities, thinks that liquidizing remnant assets means paying close attention to the cash flow statements of China’s economy, and ABS in the next few years is a field full of hope, because it is a channel, both government and enterprises can benefit from liquidizing remnant assets.
Wang Yongqin, professor of China Center for Economic Studies of Fudan University, and Zheng Chunrong, associate professor of Shanghai University of Finance and Economics, also have delivered their opinions aiming at the issues of local governments’ financing platforms and local governments.
“Hongru Forum” is a public seminar jointly launched by Liu Hongru Financial Education Foundation and Shanghai Institute of Finance and Law, and is held regularly once in two weeks. The seminar pays attention to various issues in China’s finance and macro-economy, and devotes itself to building a platform for cross boundary exchanges among excellent scholars, government and market institutions.
