Executive Summary:

Auto financing loans are effectively the only way for Chinese consumers to purchase cars, unless they have significant savings or can call on family money. They have been available in China since a pilot auto-financing programme was established by state-owned banks in China in May 1996.

In October 1998, the People’s Bank of China (PBOC) authorised the four largest state banks to undertake auto financing: The Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), the Agricultural Bank of China (ABC) and the Bank of China (BoC) started schemes. Since 1999 they have been joined by other local commercial banks including the Shanghai Pudong Development Bank. However, under this plan, individual purchasers have to leave the full purchase price of a car on deposit in a bank while paying off the auto loan.

At present only commercial banks in China are allowed to do car financing schemes under strict regulations issued by the central bank of China, the People’s Bank of China.

Additional problem remain determining credit worthiness, the inability to fluctuate interest rates for car loans and the lack of ownership certificates.

Following China’s entry into the WTO the market should become more liberalised with additional encouragements for the banks to enter the field as well as the establishment of car manufacturer financing agreements.

Despite this many Chinese consumers still claim that they do not want to enter into auto financing deals and prefer to save their cash until they have enough money to purchase the vehicle outright.

Whether or not a desire for auto financing is growing among consumers in China, it remains highly restricted and regulated. However, as part of the World Trade Organisation (WTO) accords signed in November 1999 foreign auto financing in China is part of the wider trade agreement meaning that Chinese consumers will potentially be able to utilise similar financing options to those seen in Europe and America at present - that is to say a mixture of financing through banks, car manufacturers and other financial services providers.

WTO means that, apart from the Chinese banks already providing auto financing, within five years of ratification both foreign banks and car manufacturer credit institutions will also be allowed to offer auto loans to Chinese consumers.

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