Auto financing companies (AFCs) are ready to compete with commercial banks for the Chinese auto finance market following new regulations that allow domestic and foreign firms to provide auto loans to customers.

Under the rules issued by the China Banking Regulatory Commission (CBRC) early this month, companies with total assets over 4 billion yuan (US$480 million) and registered capital over 500 million yuan (US$60 million) are eligible to set up business.

Unlike commercial banks that mainly deal with loans, AFCs set up by large auto groups are capable of offering "one-stop" services, including extending loans or providing guarantees for such loans, purchasing cars and after-sales service like car maintenance.

AFCs can also reduce their loan rates to zero to attract car buyers, though it is still not possible under present tight controls on interest rates.

"Professional auto financing companies will play a major role in China's future auto market," predicted Zhou Liqun, head of a state research team on auto consumption policy.

Foreign auto giants are closely watching the market as the rules, part of China's WTO commitments, have removed their final market barrier.

Germany's Volkswagen and US-based General Motors and Ford have made preparations for car finance businesses in China and begun to apply for operating licenses.

"Foreign AFCs, with a professional service system, will have an obvious impact on the present auto financing market," said Jia Xinguang, chief analyst of the Beijing Auto Industry Development Research Institute.

Although car loans to individuals had increased sharply since 1998, less than 20 percent of car buyers purchase with credit, against 70 percent in developed countries.

Car manufacturers predict that with the move to boost the auto market, car sales will rise by 20 percent while the average price drops by 5 percent.

(Xinhua News Agency October 18, 2003)