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New Rules to Liberalize Auto Loans

China's central bank and banking watchdog have jointly laid down new guidelines on auto financing to give more kinds of banking institutions the green light to extend auto loans in a country whose per capita GDP now exceeds US$1,000.
As of Oct. 1, all commercial banks, urban and rural credit cooperatives and qualified non-banking institutions will be allowed to grant auto loans, undoing monopolies the big four state-owned banks have had since 1998.
Spokesmen for the People's Bank of China and China Banking Regulatory Commission said the automobile is a backbone industry in China's economy, and auto consumption has a brilliant prospect amid the accelerated upgrading of the Chinese citizens' consumption structure.
The auto financing business has great potential in the fast-growing country; in developed countries people resort to bank loans to obtain 60 to 70 percent of the money needed for car purchases and driving loans make up 30 to 50 percent of all bank lending. Both proportions are relatively low in China, they added.
Outstanding loans supporting spending from Chinese banks stood at nearly 1.8 trillion yuan (US$217 billion) at the end of June, accounting for 10.6 percent of all loans. Of the consumption-spurring loans, auto lending account for just 10.2 percent.
The liberalization of auto financing is also expected to cushion the impact of reining in the over-investment in a raft of sectors to cool down the Chinese economy -- by fueling consumption, analysts say. Worries remain on China's economic hard landing, though many still believe Asia's second biggest economy will be brought back to a sustainable pace of expansion.
Under the new auto loans guidelines, individual borrowers will include Hong Kong, Macao and Taiwan compatriots as well as foreigners who reside in China's mainland for at least one year, in addition to mainland citizens.
Individuals, auto traders and institutional borrowers will face different conditions and requirements on risk control when they seek auto loans.
Loan terms and the maximum amount of loans will not be the same for different categories of cars. For instance, loans for second-hand cars, an embryonic market believed to be ready for great development, should mature within three years.
The rules also demand lenders establish a system on credit appraisal of borrowers and a supervision and alert mechanism to follow auto loans, among other measures aimed to mitigate lending risks. 
(Xinhua News Agency August 18, 2004)

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