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New financial policy to help auto consumption in 2010

China’s auto market is nearing a second wave of increased popularity, and car ownership is expected to grow from 20 to 100 units per 1,000 people, said industry experts. This time, financial policies will play a major role in the surge. 

It appears that current car loans make up between 10 and 15 percent of the market, leaving much room for potential growth.

“As China’s auto market is expanding into Tier 2 and 3 cities and towns,” said Xu Changming, director of resource development under the State Information Center, “the consumption demand will gradually focus on mid- and low-end cars, while financial support is to be a significant incentive.”

Rao Da, directory of marketing branch under China Automobile Dealers Association (CADA), said that the auto market for mid- and low-end cars is expected to grow fast when consumers’ potential demand for auto loans is realized in the near future.

Currently, China’s auto export moves lowly, despite signs of recovery that have been visible since last June. Insiders believe that China should render support to automakers with specific fiscal incentives to help ameliorate the recession in this field.

The new auto loan policy set for introduction possibly in late February will support auto finance companies, especially those under independent automakers. The government has encouraged qualified automakers to set up auto credit companies to provide financial support to consumers.

As revealed by insiders, the new financial policy states that the government will primarily grant funds to auto credit companies of independent automakers and other businesses (excluding commercial banks) through low-interest loans.

According to Luo Lei, secretary-general of CADA, the number of consumers running on auto credit is likely to increase from 10 to 30 percent of market buyers after the new policy takes effect this year, adding a potential 2 million units to be sold in 2010.

The new financial policy has made some moderate adjustments from directly supporting automakers and R&D institutions last year to indirectly providing auto loans to consumers this year, a move that will boost market confidence and purchasing power.

Car loans will likely attract those consumers with stable high- or middle-end incomes, and business people seeking capital funds. If a business can purchase a high-priced car through a loan of tens of thousand dollars, they could greatly increase their cash flow, but will have to operate under stringent borrowing conditions.

China International Capital Corporation (CICC) estimates that the annual growth rate of compound credit loans by professional auto finance companies will increase 20 percent in the next eight years, reaching approximately ¥500 billion ($73.53 billion) by 2016.

 

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