SHANGHAI - Like increasing numbers of car buyers in China, Zhang Yemin and his wife, Wu Yingjun, used a bank loan to buy their 2001 Honda Accord.
That would be a nonevent in most places in the world, but the Chinese long have resisted taking on debt and remain reluctant borrowers. But officials estimate that upwards of 15 percent of all new-vehicle sales are financed, up from an effective rate of zero in the late 1990s.
"The Chinese still see a vehicle as a depreciating asset," said Scott Reno, director of GM China's financial services department. "It will take at least five years for a credit culture to really take hold."
Local banks make all auto loans in China because automakers' captive finance arms are excluded by government regulation. But the regulation will expire in December when China enters the World Trade Organization.
But don't expect foreign auto finance companies to start making retail loans right away. There are still plenty of regulatory potholes to be filled.
For one, China's central bankers control the interest rates foreign auto financiers will be allowed to charge. Interest rates are set by the central bank at 4.95 percent for a 3- or 5-year loan, and they are allowed to float only within a small range.
A major obstacle to widespread credit, said Gordon Chan, chief representative for Ford Motor Credit Co. in Beijing, is China's lack of repossession law - it's impossible to register a lien against a vehicle in most of China.
"A national lien regulation is in the works, but it doesn't include the power to enforce," Chan said. "That's one of the biggest problems with the whole process."
GM'sReno concurred: "We're going to be pushing the envelope in collection practices."
Alysha Webb is a special correspondent for Automotive News.