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Auto Loan Rules Revised to Curtail Defaults

The People's Bank of China (PBC) and China Banking Regulatory Commission (CBRC) jointly revised rules governing auto loans Tuesday, strengthening commercial banks' risk prevention capabilities. Growing numbers of auto loan defaults have been frustrating the banks.

The new rules are also expected to help boost the nation's auto sales, promoting domestic consumption as the state tries to reduce excessive capital investment while maintaining appropriate economic growth, according to the PBC, China's central bank.

The new loan regulations, to go into effect on October 1, allow all commercial banks, credit cooperatives and qualified non-banking financial institutions to offer auto loans.

The outgoing regulations, which were enacted in 1998, originally allowed only the four state-owned commercial banks to lend money for auto purchases. Other Chinese banks were allowed into the business in 1999 as the policy loosened.

The new rules classify borrowers as individuals, auto dealers and institutional borrowers, and provide detailed qualification requirements. They also specify minimum down payment requirements for personal, commercial and used vehicles: 20, 30 and 50 percent, respectively.

Many Chinese banks have set low or even zero down payments for auto loans in recent years as they aggressively explored the new area of consumer credit. They were caught off guard when defaults began to rise.

Many lenders have recently tightened risk controls, raising down payment requirements or even suspending the business in some areas.

(China Daily August 18, 2004)

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