Now How Many Yuan a Month is the Car? - China Refines Lending Policies for Car Maker Financing

BEIJING, Jan 21, 2004; Reuters reported that China published new rules to help auto credit lenders curb risks on Wednesday as they gear up to cash in on the world's fastest-growing major car market.

The rules, published on the central bank's Web site (www.pbc.gov.cn) for public feedback until February 20, were "aimed at regulating the auto loan business to prevent risks and safeguarding the legitimate rights of lenders and borrowers".

General Motors, Volkswagen AG and Toyota Motor Corp have won regulatory approval to enter China's auto finance market.

The draft rules, which are open to revision, covered auto loans extended by commercial banks, urban credit cooperatives and non-bank auto finance firms, the bank said.

Most auto loans would have a maximum five-year maturity with interest rates determined through negotiations between lenders and borrowers "on the basis of the interest rate policy of the People's Bank of China", according to the draft rules.

Lenders must establish sound credit rating system on borrowers, including assessing their jobs, incomes, guarantors and payment histories to help prevent risks, the rules said.

Banks and other lenders would be allowed to make loans to car dealers, but they must establish credit rating systems on them.

The amount of the loan to ordinary car buyers cannot exceed 80 percent of the price, the rules said. The credit ceiling for buyers of commercial vehicles would be 70 percent.

Banks must keep tracking auto loan borrowers and make adequate provisions for bad loans, according to the rules.

Chinese banks have only been offering the service since 1998, but the service has been hampered by a lack of credit ratings and a cultural aversion to debt.

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

China's 2003 car sales, which raced past the one million-unit barrier for the first time in 2002, reached a record 1.97 million units.