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China allows consumer financing companies to boost consumption
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21:52, May 13, 2009

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China will allow non-deposit-taking institutions both home and overseas to offer consumer loans to its citizens, a new measure to stimulate domestic consumption.

China Banking Regulatory Commission (CBRC) issued, on its portal Web site Tuesday, management measures on the experiment of consumer financing companies to seek public opinions.

Consumer-financing companies will be allowed to operate on a trial basis in China's four major cities -- Beijing, Shanghai, Tianjin and Chengdu.

Loans will be extended to individuals without collateral for buying durable goods, including appliances and electronic products, and other private consumption such as travel and education, but it has barred such loans for cars and property, according to the draft.

Credit interest rate is restricted to no more than four times higher than the benchmark interest rate, and loan amounts should not be five times more than the debtors' monthly income.

The CBRC has not said when the regulations would take effect, but it said June 12 would be the deadline for public feedback.

Foreign and domestic institutions with minimum assets of 80 billion yuan (12 billion U.S. dollars), at least five years experience in providing consumer loans, and a profitable record for the past two years, are allowed to set up consumer financing companies, the CBRC requires.

China's consumer financing market is underdeveloped compared with that of the western countries.

"Commercial banks and auto financing institutions are the only two bodies providing private consumption credit, where consumption loans account for less than 12 percent of their total credit amount," said Guo Tianyong, director with Finance Research Center of China's Central University of Finance and Economics.

Experts believe more specialized consumer financing institutions are needed to spur private consumption on a larger scale.

"Introducing consumer-finance companies is expected to further promote sales of manufacturers and retailers, and help to transfer China's growth model from export-led to consumption-oriented in the long run," Chen Qiong, deputy director with CBRC's non-banking regulatory department, told Xinhua Wednesday.

Some retailers have already benefited from consumer loans. Data from the CBRC shows that Suning Appliance Co, Ltd., one of China's leading electronic retailers, has seen its sales value up 40 percent as of May since it launched appliance credit in cooperation with banks in June 2005. Gome, Dazhong and other Chinese appliance retailers also followed Suning's example, launching similar credit consumption models in 2005.

Source: Xinhua

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