Executives of Volkswagen's auto finance company in China said he expected that up to half of China's car purchasing would be financed by loans by 2015 from a mere one 10th at present.

So the German auto company is proud to open the first wholly-owned foreign auto finance company in China, said Burkhard Breiing, chairman of Volkswagen Finance (China), at a press conference yesterday.

The finance company will effectively stimulate sales of Volkswagen cars, company official believed.

The company started to provide the service last month but company officials declined to provide details of performance in the first month. General Manager Klaus-Uwe Schaffrath said the number of contracts VW has signed is "in three digits."

The China market is still an undeveloped one. In addition to a low penetration rate, the country still does not have a credit bureau where lenders can check borrowers' credit records.

The current default rate of auto loans is as high as 5 percent, according to experts' estimate. Auto finance companies also have limited channels to raise capital domestically.

But a promising car market and an emerging consumer credit culture make auto companies think auto financing will gradually become prevalent.

Volkswagen Finance opened its Beijing office in 1998, when no foreign company was allowed to operate auto finance business in China. Volkswagen and other international auto companies pushed hard for the right to provide auto financing in China when their governments negotiated with China for the latter's entry into the World Trade Organization. And they eventually obtained concessions.

Apart from Volkswagen, General Motors of the United States has also officially launched its auto financing vehicle in China. In August, GM and the Shanghai Automotive Industry Corp opened a joint venture auto finance company.

Its US rival Ford and Toyota of Japan are also reported to have submitted applications for similar operations and have a good chance of winning approval from the China Banking Regulatory Commission, the regulator of auto financing service.

With the new finance company, Volkswagen officials boast one-stop service for Volkswagen car buyers, which means customers can arrange financing with dealers.

However, Volkswagen still cannot provide an insurance service, for which car buyers need to look to insurance companies.

Breiing said the company will take a cautious approach in developing its business to control risks.

Other company officials said they were informed by officials from the central People's Bank of China that a credit record system would be available by year's end.

(China Daily October 22, 2004)