Taking a page out of the U.S. handbook on how to package loans so that no one can understand them, Chinese officials are considering expanding a pilot program that allows the country’s domestic banks to securitize loans to include foreign banks. According to an exclusive report from Reuters, the expanded program would be open to all 42 foreign banks with locally incorporated Chinese branches. Banks that could be added to the program include HSBC Holdings PLC (NYSE: HBC), Citigroup Inc. (NYSE: C) and London’s Standard Chartered.

The packaging deals would be limited, sources told Reuters. Recent deals have ranged from 1 billion to 10 billion yuan (about $164 million to $1.64 billion). So far, collateralized loan obligations (CLOs) represent a minute fraction of the Chinese lending market, and adding foreign banks to the program will not alter that fraction by much because foreign banks hold less than 2% of all China’s bank assets.

Because the underlying assets of foreign banks are more visible, the CLOs these banks offer are likely to be quite popular. From China’s point of view, allowing foreign banks to offer CLOs is intended to attract more foreign capital into the country because the securitizing credit will come mainly from foreign investors.

Lack of transparency makes it difficult to assess accurately the scale of China’s bad debt problem. State regulators claim that non-performing loans make up less than 1% of all loans, but no one really believes that. Outstanding loans totaled 70 trillion yuan (about $11.5 trillion) at the end of September.

The securitization program for Chinese banks has been running since 2005, but only about $14.8 billion in CLOs have been issued.

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