The Comparison of the Asset Backed Securities Between China and the USA: Working Mechanism, Regulatory System and Potential Risks

The paper will compare and contrast the asset-backed securities, which are financial products in the shadow banking system in China and the USA. An asset-backed security (ABS) is a financial investment collateralized by an underlying pool of assets. Due to different regulatory systems in different countries, the working mechanism and the potential risks for purchasing asset-backed securities will vary from country to country. Our analysis compares the working mechanism of asset-backed securities in China and the USA, such as classification, credit rating, and investor base. We investigate the different regulatory system of asset-backed securities in China (the so-called New Asset Management Regulations) and USA (the Dodd-Frank Act) in order to find out the different potential risks that are brought by the securities. Based on our research, we evaluate the asset-backed securities including long-term effect vs short term effect and pros and cons on different stakeholders.