cdata-section-elements not working for dynamically created element - xslt

Question

I am trying to define some dynamically created elements as cdata sections, but it's not working for some reason:
<xsl:stylesheet version="2.0" xmlns:xsl="http://www.w3.org/1999/XSL/Transform">
<xsl:output omit-xml-declaration="no" indent="yes" method="xml"
cdata-section-elements="DESCRIPTION2"
/>
<xsl:strip-space elements="*"/>
<xsl:template match="#*|node()">
<xsl:copy>
<xsl:apply-templates select="#*|node()" />
</xsl:copy>
</xsl:template>
<xsl:template match="/RSS/ITEM/TEST">
<DESCRIPTION2>
<div class="container">
<xsl:if test="NAME != ''">
<div class="test">
<xsl:value-of select="NAME"/>
</div>
</xsl:if>
</div>
</DESCRIPTION2>
</xsl:template>
</xsl:stylesheet>
Test XML:
<?xml version="1.0" encoding="UTF-8"?>
<RSS>
<ITEM>
<CODE>41,000</CODE>
<TEST>
<NAME><p>HTML code</p></NAME>
</TEST>
</ITEM>
</RSS>
Live test.
Sure I can add manually (<xsl:text disable-output-escaping="yes"><![CDATA[</xsl:text>), but I would like to know why it's not working If I define it as cdata-section-elements.

Answer 1

CDATA serialization happens for text nodes inside of the nominated elements, if you put in elements there it doesn't happen. Note that, assuming an XSLT 3 processor with XPath 3.1 support, you can use the serialize function to serialize the content you build as html and then output it as a text node:
<xsl:template match="/RSS/ITEM/TEST">
<xsl:variable name="html">
<div class="container">
<xsl:if test="NAME != ''">
<div class="test">
<xsl:value-of select="NAME"/>
</div>
</xsl:if>
</div>
</xsl:variable>
<DESCRIPTION2>
<xsl:value-of select="serialize($html, map { 'method' : 'html' })"/>
</DESCRIPTION2>
</xsl:template>
http://xsltfiddle.liberty-development.net/948Fn5i/1 then gives the result as a CDATA section
<DESCRIPTION2><![CDATA[<div class="container">
<div class="test">Peter</div>
</div>]]></DESCRIPTION2>

Answer 2

Your content is well-formed XHTML, so it doesn't need to apply CDATA when serializing the content.
If you escaped the markup and constructed a string, it would serialize as CDATA:
<xsl:template match="/RSS/ITEM/TEST">
<DESCRIPTION2>
<div class="container">
<xsl:if test="NAME != ''">
<div class="test">
<xsl:value-of select="NAME"/>
</div>
</xsl:if>
</div>
</DESCRIPTION2>
</xsl:template>
Produces:
<DESCRIPTION2><![CDATA[
<div class="container">
<div class="test">
Peter
</div>
</div>
]]></DESCRIPTION2>
But why would you want to generate a string when you could have well-formed markup? It makes it a pain for everyone downstream.