Financing rules announced

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Last updated at: (Beijing Time) Friday, November 14, 2003

Financing rules announced

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China has issued follow-up rules on auto financing, detailing regulatory requirements and procedures for the establishment of auto financing companies in the country, one of the world's fastest-growing car markets.

The rules, announced by the China Banking Regulatory Commission (CBRC) on Wednesday, require such companies to have capital adequacy ratios of 10 per cent, which is stricter than the 8 per cent requirement for commercial banks.

Total guaranteed outstanding loans must not exceed 200 per cent of the financing company's registered capital, nor can they offer preferential treatment to related parties, according to the new regulations.

Interest rates can be up to 10 per cent less or 30 per cent more than the base rate set by the central bank, the same standard for commercial banks' loan operations.

China issued auto financing regulations in October under its World Trade Organization (WTO) commitments. The regulations require at least 4 billion yuan (US$483.2 million) in assets, though this was relaxed from earlier guidelines stipulating minimum assets of 8 billion yuan (US$963 million).

A release from the commission said the stricter rules aim to ensure the stability of the burgeoning industry, as China still lacks a personal credit record system and related laws.

There is still a gap between the commission's rules and those in developed countries in terms of business scope and supervision, the statement said.

It added that the moves have been put in place in order to maintain the stability of financial markets, and ensure the steady development of China's auto financing industry.

US auto giant General Motors Corp became the first overseas car maker to apply to offer auto financing in China on Wednesday, which executives have said could boost its already booming sales by another 20 per cent, Reuters reported yesterday.

Sales from GM's four ventures in China soared by almost 38 per cent year-on-year in the first nine months to 267,395 units, already overtaking 2002's total of 264,101.

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