Credit default swaps are a Wall Street invention. During the crisis of 2008, they crippled a number of significant financial companies. But where in the world are such instruments most popular? Not in the US, despite what you might think, but in China.
The China Financing Guarantee Association, a quasi-governmental body that regulates the guarantee companies (in other words, the issuers of the swaps), says it has 194 member institutions, though their ranks have thinned in recent years. Many guarantee companies have simply not bothered to become members of this club.
In a parallel with the American obsession with home ownership that led to the formation of Fannie Mae and Freddie Mac, the federal housing finance agencies, the Chinese government has in the past few decades done its best to promote small and medium-sized enterprises by providing them with credit guarantees. Tens of thousands of state-owned, private and hybrid guarantee companies have come into being.