To date, five auto financing companies run by the world's auto giants including General Motors, Volkswagen AG, Ford Motor Co. and Toyota Motor Corp. have gone into operation in China with the latest one run by DaimlerChrysler operational in Beijing early this month.

But insiders still doubt whether the foreign players can help expand China's sluggish auto financing market.

"Several foreign auto financing firms cannot play a decisive role in vitalizing China's auto financing market as they are not able to fully display their strength in a short period of time," said Cui Yiping, head of the individual consumption loans section of the Agricultural Bank of China (ABC). ABC has been the leading domestic provider of car loans over the past years.

China's auto financing used to be done mainly by four domestic commercial banks, namely the Industrial and Commercial Bank of China, Construction Bank of China, Bank of China and Agricultural Bank of China. In August last year the first foreign-funded auto financing company, a joint venture between Shanghai Automotive Industry Corp. and General Motors went into operation in Shanghai.

Car loans had seen double-digit growth rates annually in the beginning but began to suffer a chill from last year as the four domestic car loan providers saw drastic ratios of non-performing car loans, with the highest reaching 15 percent. The chill came from delayed repayment of loans, fake individual car loan applications and car loan fraud, an official in charge of car loans of a commercial bank, who declined to be identified.

In this sense, the central government ordered to restrain credit scales and the China Banking Regulatory Commission intensified the efforts to straighten car loan businesses. Against such a backdrop, the four commercial banks shrank auto loans to great extent and some small banks even stopped this business.

Car loans accounted for 40 percent of the total automobile sales volume in 2003, and the ratio dropped to 16 percent last year and is expected to rebound to about 20 percent this year, according to the China Automotive Industry Association.

Now cars sold with loan assistance account for only 20 percent of total car sales in China, but the ratio is more than 90 percent in the United States, 80 percent in Britain and 75 percent in Germany.

Foreign car financing firms also have to get rid of many fetters to achieve a big niche of the auto financing market in China, insiders say.

According to the stipulations of China Banking Regulatory Commission, auto financing companies are forbidden to run subsidiaries.

"This means that they have to rely on auto dealers across the country to establish their financing support system," said Jia Xinguang, a researcher with the Automotive Industry Development Research Institute of China.

"Our headquarters is based in Shanghai, but we can guarantee our auto financing services to cover car dealers in several major regions," said Wei Deming, general manager of General Motors auto financing firm in Shanghai.

"Relying too much on car sales cannot give full play of the advantages of auto financing," said Zhu Mengnan, a professor with Xiamen University in east China's Fujian Province.

The collection of credit ratings of individual car buyers is also a hard nut that foreign auto financing firms have to crack. As credit information is controlled by commercial banks and car dealers, foreign auto financing firms have to buy the information or to establish their own information database to simplify car loan procedure.

"We hope individual buyers' application for loans can be approved in several hours, not several days," Wei said.

Insiders worry that auto financing firms might follow the same disastrous road of China's commercial banks in providing car loans as they still face many other restrictions including the fluctuations of loan interest. Auto financing firms in foreign countries enjoy more flexible lending rates and close relations with auto makers.

Some people say the entry of foreign auto financing companies can spur domestic commercial banks to improve their services and work efficiency and bring about experience for Chinese counterparts to learn from.

"It is unnecessary to magnify the influence of foreign auto financing firms," said Cui with the ABC. "State-owned commercial banks have begun improving and readjusting businesses related to car loans to prepare for the recovery of the market."

"We have come to realize the real situation and cleared up potential risks," said Cui. "We have ways to handle car loans well."

"The recovery of car loans needs not only the readjustment of commercial banks, but also the influx of "new blood" such as domestic auto makers including First Automotive Works (FAW), Chery and Geely," said Jia Xinguang, the researcher. But these auto makers are not entitled to apply for car loan business in a short period of time, he said.

According to the State Information Center, China produced 4.2 million automobiles in the first three quarters this year, eight percent more than last year's same period. There was a profit of 29.956 billion yuan (3.69 billion US dollars) in the auto manufacturing sector in the January-August period, down 42.62 percent from the same period last year.

Insiders say that foreign auto financing firms cannot raise severe competition, nor can they change the sluggish situation of car loans in China.

Possibly, foreign auto financing firms are not coming to compete with Chinese counterparts or to change the situation, as Jia, the researcher said. "They come to expand their industrial chains to gain greater profits."

Something has to be done, such as the renovation of financing system and services, in order to enliven car loans in China, Jia said.

Source: Xinhua