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Tue, Oct 07, 2003 - Page 12 News List

Beijing releases auto-loan rules

AFP , SHANGHAI

China has published long-awaited rules allowing the issuance of automobile loans, removing a final market barrier to foreign firms that paves the way for them to sell more cars, the state-run press reported yesterday.

The regulations, part of a key commitment Beijing made upon its WTO entry at the end of 2001, is expected to further boost China's booming auto market.

"The formulation and implementation of the rules signify China's commitment to fulfilling its WTO entry obligations and will contribute to the opening-up and sound development of China's auto financing market," the China Daily quoted a China Banking Regulation Committee (CBRC)spokesman as saying.

Volkswagen, General Motors and Ford have made preparations for car-finance businesses and will now be able to apply for licences.

Under the rules, auto financing companies will be allowed to extend loans or provide guarantees for such loans, offer car procurement or equipment loans to auto dealers, the China Daily reported, citing regulations published over the weekend.

The rules require non-bank institutions and car companies that want to set up car-financing firms to have registered capital of 300 million yuan (US$36 million), three years of profits, annual income of at least 2 billion yuan and assets of 4 billion yuan.

While the applicant will need permission from the CBRC, which must also approve its chairman, general managers and other top officers, the rules have been somewhat relaxed.

An initial set of draft rules on auto financing, including an unusually high capital requirement of 500 million yuan, surprised industry insiders when they started circulating last year.

Facts and figures:

* Auto financing companies will be allowed to extend loans or provide guarantees for loans to car buyers and dealers.

* To set up car-financing firms non-bank institutions and car companies must have registered capital of 300 million yuan, annual income of at least 2 billion yuan and assets of 4 billion yuan.

* Less than 20 percent of new car buyers purchase the vehicles with credit.


China's auto-financing lags far behind other countries, with loans strictly the providence of commercial banks and finance companies affiliated to automobile groups. Fewer than 20 percent of buyers of new cars purchase with credit, against 70 percent in developed countries.

Manufacturers estimate that providing credit should boost sales 20 percent, offering customers a "one-stop shop, including car and finance." Car companies, however, are unlikely to speed ahead due to China's strict control on interest rates and inadequate credit check-ing systems.

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