SHANGHAI — After rising 7.9 percent in May and 5.1 percent through May, sales of new light vehicles in China increased just 2.3 percent in June and fell 5.3 percent in July.
Industry trade groups and market research firms have produced various theories to explain why the market suddenly ran out of steam. But wdjz.com, a website tracking peer-to-peer lending in China, has provided one plausible factor. It says Beijing's crackdown on those platforms is the culprit.
In 2015, the Chinese government legalized peer-to-peer platforms, which peddle consumer loans online between cash-rich individuals and cash-poor consumers.
The number of such platforms has mushroomed, topping 8,000 by the end of 2017, according to the People's Bank of China, the country's central bank.
But it turns out that a large number of the platforms are badly managed. To attract lenders, they promised interest rates several times higher than rates banks paid on savings and other deposits.
The results were predictable: An increasing number of platform users have defaulted on payments, borrowers have gone dark, and lenders now seek government help to recover funds.
Facing mounting public pressure, government regulators this year moved to clean up such lending practices.
By the end of May, 5,704 problematic peer-to-peer lending platforms were closed, leaving 2,902 still in operation, according to the People's Bank.
The crackdown wreaked havoc on new-car sales because the lending platforms have become an important source of new-vehicle loans.
Sanford C. Bernstein, a Wall Street investment bank, estimates that about 10 percent of peer-to-peer lending platform customers in 2017 were car buyers, most of whom were young.
Bernstein also estimates that car loans from these lenders contributed 9 percent of new-car sales in China last year. Drawing on the statistics provided by wdjz.com, Shenwan Hongyuan Securities, of Shanghai, a major Chinese securities firm, believes the contribution rate from peer-to-peer lenders to new-vehicle sales was somewhere between 10 and 15 percent.
In June, auto loans provided by peer-to-peer platforms in China plunged 29 percent from a year earlier to 16.5 billion yuan ($2.4 billion), according to wdzj.com.
The sharp cutback in lending provides a convincing explanation for the sudden softening of new-car demand.
In the second quarter, China's gross domestic product growth slowed to 6.7 percent from 6.8 percent in the first quarter. On July 6, the Trump administration imposed an additional tariff of 25 percent on $50 billion worth of Chinese goods.
It's true both factors might have affected China's new-vehicle sales to some extent, but not so soon and so dramatically as Beijing's crackdown on peer-to-peer lending.
And the bad news for carmakers is that China's central bank announced it would continue with the crackdown with other government agencies until June 2019. That means it would be hard for the Chinese new-car market to resume growth anytime soon.
