China: A Capital Markets: Securitisation & Derivatives (PRC Firms) Overview

The Implementation Pathways for Cross-Border Asset Securitisation in China and the Dynamics of Relevant Laws and Regulations

Cross-border asset securitisation in China encompasses two directions: “going out” and “bringing in”. “Going out” refers to Chinese onshore entities securitising their onshore assets through onshore or offshore SPVs and issuing the corresponding asset-backed securities (ABS) to overseas investors. “Bringing in” refers to overseas entities issuing ABS in China using their onshore or offshore assets. This article analyses the implementation pathways of cross-border asset securitisation in both directions in light of policy, the regulatory framework, market conditions and practical experience.

“Going out” by onshore entities

In principle, onshore entities may conduct securitisation of onshore assets in overseas markets through two approaches: the first is directly transferring onshore assets to an offshore special purpose vehicle (SPV) and issuing ABS; the other is having the onshore assets held directly by an onshore SPV, while issuing bonds backed by onshore assets in overseas markets through an offshore SPV.

Transfer of onshore assets offshore for the issuance of ABS

The main obstacles to this model lie in external debt administration and foreign exchange control. Where an onshore originator transfers its onshore receivables as underlying assets to an offshore entity, the transaction will result in passive external indebtedness of onshore debtors to offshore transferees. Under the current foreign debt administrative system of China, onshore enterprises that borrow debt instruments with a maturity of more than one year from overseas must complete foreign debt review and registration with the National Development and Reform Commission (NDRC) and complete foreign debt registration with the State Administration of Foreign Exchange (SAFE). In an asset securitisation transaction, it is normally impractical to require each underlying debtor to register individually, and the NDRC does not provide simplified procedure as applicable to cross-border transfer of NPLs.

Another major obstacle to the direct transfer of underlying assets offshore is cross-border data transfer, especially where the obligors are natural persons. Although the Cyberspace Administration of China has issued a series of regulations specifying applicable conditions and procedural requirements for different data export methods, onshore entities still have significant concerns regarding legal and compliance uncertainties. These uncertainties have reduced their willingness to directly conduct cross-border asset transfers.

Nevertheless, with the optimisation of national policies on free trade zones, it may be possible to explore cross-border asset securitisation in free trade zones using specific asset types. In July 2025, the State Council issued Circular of the State Council [2025] No 68, which advises the implementation of cross-border transfer of ABS by eligible asset management companies, and exploration – in qualified free trade zones – of the cross-border transfer of financial leasing assets and pilot settlement in renminbi.

Issuing ABS in offshore markets via a dual-SPV model

Considering the practical difficulties in directly transferring underlying assets across borders, onshore enterprises seeking to expand their overseas investor base may consider implementing cross-border ABS issuance through a dual-SPV model.

Recently, the Asia-Pacific Structured Finance Association (APSA) in Hong Kong has proposed an initiative to establish a “Structured Finance Global Connect” (SFGC) between Mainland China and the Hong Kong Special Administrative Region (HKSAR) to multiple regulatory authorities in both jurisdictions. The SFGC is a targeted enhancement of Hong Kong-Mainland China market connectivity that enables accredited Hong Kong "orphan" special SPVs (HK SPVs) to acquire Mainland China bonds and securitisation products (both in the exchange market and the China Interbank Bond Market – CIBM) via Bond Connect and repackage them into offshore asset‑backed securities for purchase by global institutional investors. Onshore entities seeking to access global fixed income markets can initiate a transaction under SFGC by leveraging their onshore receivables or assets.

The successful implementation of this initiative depends on the support of bilateral regulatory authorities in Hong Kong and Mainland China, including improvements to the existing tax systems of both regions (by drawing on practices from mature markets). If this initiative is successfully implemented, it will have high practical significance for both Mainland China and Hong Kong.

Issuing ABS tokens overseas backed by onshore assets

On 6 February 2026, the CSRC issued the Guidance on the Supervision of the Overseas Issuance of ABS Tokens Backed by Onshore Assets (the “Guidance”). “Overseas issuance of Asset-Backed Security Tokens backed by onshore assets” is defined in the Guidance as “the activity of issuing tokenised certificates of interests overseas, supported by cash flows generated from onshore assets or related rights, by utilising cryptographic technology and distributed ledger or similar technologies”. The Guidance expressly sets out six prohibited scenarios and states that the CSRC will exercise strict supervision in accordance with laws and regulations in respect of such activities. Prior to conducting relevant business, onshore entities that actually control the underlying assets shall file with the CSRC, submit materials and explain relevant circumstances as required.

The “bringing in” of offshore entities

As China’s enterprises embark on a wave of overseas expansion, their financing needs in the capital markets have gradually emerged. Due to temporary difficulties in financing in the local capital markets, also driven by the financing cost advantage in the onshore capital markets, returning to the onshore markets to raise funds has become an attractive option for these enterprises.

Issuing Panda bonds in the interbank bond market

The People’s Bank of China (PBOC) and the National Association of Financial Market Institutional Investors (NAFMII) have established a relatively sound regulatory framework for Panda bonds. Pursuant to the Interim Measures for the Administration of Bond Issuance by Offshore Institutions in the National Interbank Bond Market, offshore non-financial enterprises shall apply for registration with NAFMII to issue debt financing instruments in the CIBM.

The CIBM offers a wide range of product options for non-financial enterprises to issue debt financing instruments, including medium-term notes, asset-backed notes and covered bonds; in addition, NAFMII has issued supporting rules such as the Guidelines for the Business of Offshore Non-Financial Enterprises in Debt Financing Instruments (2023) and the Measures for Hierarchical and Classified Administration of Offshore Non-Financial Enterprises in Debt Financing Instruments. In 2022, to facilitate multiple issuances by offshore institutions, the Regular Issuance Plan was launched. Pursuant to the Notice on Pilot Programme for Optimising the Registration and Issuance Mechanism of Panda Bonds, qualified offshore enterprises may apply for unified registration for multiple product issuances.

According to Xinhua Finance, the value of Panda bonds issued in the CIBM alone reached RMB163.31 billion in 2025, representing a year-on-year increase of 15.6%. The Panda Bond Rules include asset-backed notes as one of the product categories. Overseas enterprises may explore feasible Panda ABS issuance models with NAFMII.

Issuing offshore ABS in the Shanghai Free Trade Zone

In September 2025, the Shanghai Municipal Financial Regulatory Bureau and the PBOC (Shanghai headquarters) issued the Measures for Further Promoting the High-Quality Development of Offshore Bonds in Shanghai Free Trade Zone (Trial), which announced the development of offshore bonds in the Shanghai Free Trade Zone, including “receivables securitisation products”. Subsequently, the Provisions on the Development of Offshore Bond Business in Pudong New Area of Shanghai further implemented and detailed the rules for offshore bond issuance.

The key points of the offshore bond regime are as follows.

• Issuers: All issuers are offshore entities, including overseas subsidiaries of onshore enterprises and overseas branches of onshore financial institutions. Overseas subsidiaries of onshore enterprises are encouraged to use offshore bonds as an important financing channel.
• Investors: Currently, only offshore entities are permitted, including overseas subsidiaries of onshore enterprises and overseas branches of onshore financial institutions.
• Denomination currency: Renminbi is encouraged, with compatibility for foreign currencies to meet the needs of issuers.
• Registration and custody: Registration and custody services shall be provided by institutions operating in the Shanghai Free Trade Zone. The primary custody model will be adopted in principle; a multi-level custody model may be adopted on a need-for-business basis.
• Use of funds: Primarily for financing overseas projects.

The introduction of this offshore bond regime provides new opportunities for Chinese overseas expansion enterprises, overseas branches of Chinese financial institutions and other offshore entities to issue onshore asset securitisation products. Moreover, regarding issuance rules, the aforementioned provisions state that “international rules and practices shall apply”. Relevant entities may design issuance structures with reference to international practices.

Conclusion

The types of underlying assets in China’s asset securitisation market are becoming increasingly diverse, offering international investors a wide range of options. Nevertheless, further optimisation and enhancement are still needed in terms of the convenience of investment operations and the depth of market opening, so as to boost its long-term attractiveness to global capital.

Currently, China’s onshore bond market holds a comparative advantage in terms of issuance costs. Coupled with the strong financing demands generated by the overseas business expansion of Chinese-funded enterprises, driving offshore entities to the onshore market and issuing ABS is a path worthy of in-depth exploration. This model can not only effectively meet enterprises’ financing needs and optimise financing costs, but is also highly aligned with the macro-strategic direction of the internationalisation of the Renminbi.