中国人民銀行の資料によれば、中国の自動車ローン1800億元のうち不良債権は945億元に上る(2003年末現在)。4大国有銀行(すなわち中国工商銀行、中国農業銀行、中国銀行、中国建設銀行)において自動車ローンは、不良債権の8割を占めている。自動車ローンは数年前に始まったばかりだが、この状況は銀行からみてまさに悪夢である。現在、多くの銀行では自動車ローンを完全に停止している。メーカー側資料によると、今年の自動車販売で自動車ローンを利用した者はわずか5％にすぎなかった。ちなみに過去2年のそれは20％台である。自動車産業にとって当面の問題はなにか。それは中国の自動車金融があまりにもリスクが大きいことだ。これは中国における自動車の販売市場の発展にとって、長期的にみて障害となろう。

According to PBOC data, at the end of 2003 Chinese banks were sitting on some Rmb 94.5 billion of non-performing loans (NPL 不良贷款), out of a total volume of auto loans of some Rmb 180 billion.  For the four big state banks, ICBC, ABC, BOC, and CCB, the share of auto loans that have become NPLs is an astonishing 81%!  For a business—auto financing--that is only a few years old, this situation is obviously a disaster for the banks.  At present, many banks have completely stopped making auto loans.   According to industry sources, this year only 5% of auto purchases were financing by auto loans, compared with 20% in the past two years.  For the auto industry, the question is now:  is auto financing in China so risky that financing will become a long-term obstacle to sales and market development?

What Happened?

In 1999, when PBOC first began to allow car loans, a widely reported fraud occurred in Foshan, in Guangdong province.  Some persons used false documentation to obtain auto loans from banks in Foshan.  After buying the cars in Foshan, they immediately drove the cars to Guangzhou and sold them.  Then the criminals disappeared.

This is just one incident, but it shows that fraud has been a feature of auto loans since the beginning.  In the years that followed, banks did little to avoid fraud and losses.  Two types of scams 骗局have been common.  One has involved small dealers 经销商 who would take fraudulent documentation appearing to represent real buyers of several expensive cars to several different banks, and receive a large aggregate amount of loans (against the same fraudulent transaction) from each of the banks.  Once the banks haves made the loans, the dealer disappears.  A second type of scam is simply individuals with fraudulent intent taking advantage of the desire to bank staff to make supposedly “safe” consumer loans.

Of course, in very cases, bank staff have conspired with the criminals, receiving kickbacks and bribes for their cooperation.  When transactions involve fraudulent documentation, it is particularly easy for bank staff to cooperate in the scam.  When the loan goes bad, they can always claim to have been deceived.

A third big reason for the NPLs is that during 2002 and 2003, Chinese insurance companies began writing “risk insurance” policies covering the up to 90% of the default risk on auto loans.  Banks were very happy to make loans to anyone who could present such policies.  Insurance companies began tying up the banks to “package” these transactions.  However, a big problem was that the insurance companies (often also due to internal corruption and collusion) had no idea how to manage default risk in these cases.  As instances of default jumped, the China Insurance Regulatory Commission issued orders prohibiting the insurance companies from issuing new default risk policies, and also prohibiting them from paying out again claims from the banks.  This was a case of regulatory risk in which the banks have been the big losers.

Finally, the huge NPL mess is also to a large extent the result of lack of debt collection efforts and capabilities by Chinese banks.  Compared with banks in any mature market, Chinese banks are not aggressive at collecting bad debts, and their collection record is poor.  This surely reflects a sensitivity within the bank to the scandalous origin (i.e., kickbacks and corruption) of many the loans.  It also reflects the dearth (due largely to regulatory restrictions) of effective professional collection agencies in the market.  Difficulties in getting and enforcing legal judgments through the police and court system is also a big contributor to the problem. 

Slow Start by Auto Finance Companies

If the banks have found auto lending perilous, will specialized auto finance companies owned by foreign auto makers be more successful?  It is too early to answer this question.  After a short starting period, the companies established by GM, Volkswagen, and Toyota are finding business development difficult. 

A manager of VW’s company, 大众汽车金融（中国）有限公司, told the local press that foreign auto companies are optimistic about the market.  He noted that currently only about 10% of auto sales are financed by loans.  It is expected that within 10 years the volume will increase to 40-50% of sales.

However, at present, the auto finance companies are encountering real obstacles, including regulatory obstacles, to developing business and making profits.  The regulatory obstacles stems of provisions of the <汽车金融公司管理办法>, which became effective October 1.  These provisions include high capital requirements to set up a business, a prohibition on establishing branches, and a requirement that the rate of interest on loans be set 1% over the rate on bank loans. 

Then there are what might be called “environmental” problems.  As China still lacks a reliable credit checking system, the companies have been incurring high costs for credit checking and risk management.  Add to this a (temporarily?) weak sales market, and the result has been operating losses. 

In time, it is reasonable to expect the sales market to improve.  But what about the regulatory constraints imposed by the <汽车金融公司管理办法>?  It is these constraints that the companies are finding most vexing.

“福无双至，祸不单行”

At the same time that consumers have grown cautious and are deferring auto purchases, new monetary policies of the Central Bank are likely to negatively influence the auto companies business.  The PBOC’s decision to raise deposit and loan interest rates by 0.27 % will mean higher costs of funds for the auto finance companies, which they will have to pass on to dealers through their dealer loan rates.  This will raise costs for the dealers who are already facing a weak consumer market and lower profitability.

Banks vs. Auto Finance Companies:  Who has the Advantage?

Given the poor record of the auto financing by banks, are they likely to withdraw from this business and cede the market in the auto finance companies?  Certainly, this is unlikely. 

Although the bank have a terrible record, the problems are certainly understandable and solvable through better management.  At present, the banks have by far the dominant position in providing auto loans.  In Shanghai, some 90% of auto loans have come from banks.  The banks are likely to try to maintain this dominant position, so auto finance companies will have to work hard to create competitive advantage, as well as to overcome the disadvantages placed upon them by the protectionist regulations.   

The author is president of S.M. Harner and Company, a financial services consultancy, and a ten year resident of Shanghai.