SHANGHAI -- China unveiled rules governing car loans on Tuesday aimed at curbing risks in a nascent industry grappling with growing sour car loans and a slowing market triggered by Beijing's efforts to brake the racing economy.
Automakers hope car financing will fuel the next stage of explosive growth in the country as car sales decelerate, hit by a clampdown on easy credit in the auto and other sectors.
General Motors and rival Volkswagen AG this month became the first foreign firms to be granted approval to operate auto financing companies in China. Rivals Toyota Motor Co. and Ford Motor Co. are waiting in the wings.
Total outstanding auto loans stood at 183.3 billion yuan ($22.15 billion) at end-June, about 10 percent of total consumer loans issued by financial institutions, the central bank said.
Fewer than 20 percent of new cars sold in China are financed, compared with more than 80 percent in North America and Europe, with large state banks dominating the Chinese market.
The rules, little changed from a draft first circulated in January, allow new car buyers to borrow up to 80 percent of the cost, the central bank, People's Bank of China, said.
They would limit to five years the maturity of most car loans and strengthen risk control management, it said in rules on its Web site (www.pbc.gov.cn), due to take effect on Oct. 1.
But analysts say the rules would not have a dramatic impact from the outset.
"It should help reduce risk, but it's hard to say if it will boost sales," said Capital International Holdings analyst Lin Wenjun. "That will have to involve a change of attitude by consumers to get them to use what is still a new product."
The regulations follow the granting of permission late last year for non-financial and foreign firms to enter the business.
But commercial banks, today the only ones issuing auto loans, have been reining in credit under a nationwide campaign to slow an economy in danger of overheating, and as the amount of bad car loans soars.
This has not curbed the enthusiasm of foreign firms.
GM, the world's top auto maker, expects up to half of all Chinese car buyers will be financing their purchases within 10 years, though executives have said the industry needs a national credit rating system and procedures for repossessing cars where loans are defaulted.
A GROWING POOL
China has no central credit rating agency, no laws to repossess cars from errant borrowers, and -- after just a few years -- a swelling pool of non-performing auto loans.
Banks began offering the service in 1998, but rapidly scaled back after an explosion in bad car loans. Official data is not available, but industry sources say it is high.
Analysts say these uncertainties mean providing credit will not necessarily translate into an immediate sales fillip.
China car sales rose just 1.6 percent in July from June to snap a three-month decline, and growth is expected to slow to just 10-20 percent this year after nearly doubling to 2 million units in 2003.
Rules allowing non-bank institutions to set up car financing were issued last October by Beijing, fulfilling World Trade Organization pledges more than a year late.
Under final regulations published on Tuesday, lenders must establish a sound credit file on borrowers, including assessing their jobs, incomes, guarantors and payment histories.
It gave no specifics on how this would be done.
The rules "stress the principle of loan risk and management, which is beneficial to the development of the auto financing sector and at preventing risk," the bank said in a statement published alongside the rules.