No Yuan Down a New Pitch In China

SHANGHAI, Dec 29, 2003; Ben Blanchard writing for Reuters reported that China's banking regulator has given approval on Monday to three car giants to set up auto financing operations in China, which could give a further boost to what is already the world's fastest growing major car market.

General Motors, Volkswagen and Toyota have all been given the nod, the China Banking Regulatory Commission said in a statement on its Web site www.cbrc.gov.cn.

Once the three companies have set up their operations, which is expected in the first half of next year, they will need further approval to begin offering the loans to customers in China, the regulator added.

Toyota and Volkswagen are planning to set up first in Beijing and GM in Shanghai, the regulator said.

GM, Volkswagen and Toyota executives were not immediately available to comment.

GM's auto-financing unit -- General Motors Acceptance Corp -- will team up with an arm of its long-standing Chinese partner Shanghai Automotive Industry Corp, while Volkswagen Financial Services and Toyota Financial Services will go it alone, the regulator said.

SWIFT APPROVAL

Analysts were surprised approval had come through so soon.

"The Chinese government probably wants to show it is able to put into effect as soon as possible its WTO promises and let in foreigners," said Yale Zhang at Automotive Resources Asia. "It was late in even letting them apply."

Rules allowing non-bank institutions to set up car financing were issued in October by Beijing, fulfilling World Trade Organisation pledges more than a year late, but ensuring a longer-term fillip for an already hot car market.

Chinese banks have only been offering the service since 1998, but the service was rapidly scaled back after an explosion in bad car loans before it reappeared earlier this year.

China's car sales, which broke the million mark for the first time last year, are expected to almost double this year even though most vehicles are paid for in cash.

Less than 20 percent of car buyers in China use loans, all provided by local banks, compared with upward of 80 percent in more developed markets in North America and Europe.

Lenders hope to accelerate the nascent consumer finance trend, but could find it hard in the short run due to low incomes, lack of credit ratings and a cultural aversion to debt.

The rules ensure only the biggest institutions can play, requiring at least four billion yuan ($483.2 million) in assets, though this was relaxed from earlier guidelines stipulating minimum assets of eight billion yuan.

The regulator's Web site also carried an interview with an official from the body, who said he expected a Chinese company to soon apply to offer car loan services.

Analysts said this is easier said than done.

"It may be difficult for Chinese companies considering the capital requirements," said Zhang.

The detailed rules also demand auto financing companies have capital adequacy ratios of 10 percent, though many of China's banks do not even meet ratios of eight percent.