Booming demand drives auto finance markets in China

21 March 2006

Mumbai: The growing demand for vehicles coupled with increasing awareness about available automotive financial options has been presenting abundant opportunities for the automotive financial markets in China, reveals a Frost & Sullivan report.

The report, Chinese Automotive Finance Markets, finds that the Chinese automotive finance markets earned revenues of $4.90 billion in 2004 and estimates it to reach $12.70 billion in 2011.
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The growth of the market is being driven by the liberalisation of regulations and restrictions due to the open door policy announced in 1998 and the timely rise in the number of captive licenses approved by the Chinese government.

"The markets are witnessing a transition in car buyers' preference for various financial options from the conventional means of purchase through cash," states the Frost & Sullivan industry analyst Amelia Wong.

Finance providing companies are vigorously organising promotional activities to educate their customers, ultimately offering greater product differentiation and superior services.

However, participants in the Chinese automotive finance markets need to overcome the high level of non-performing loans, which account for 50.0 percent of total outstanding loans.

Besides bad loans and fraud-related concerns that started surfacing in 2003, improper allotment of automotive loans without following proper rating procedures and inadequate investigation of customers' credibility is causing high-default rates.