Government rules ease lending for vehicle purchases

In an effort to boost consumption, China's central bank and the nation's top financial regulatory body have unveiled a new set of rules to make it easier for consumers to take out loans in the purchase of personal vehicles.

Analysts said the rules will help increase car purchases in the world's largest auto market while helping financial institutions further tap into their lending potential.

In a statement published on April 3, the People's Bank of China and the National Financial Regulatory Administration said loan ratios for gasoline-powered and electric passenger vehicles can now be independently determined by lending institutions.

Before the revision, car buyers had to make a minimum down payment of 15 percent if they opt to take loans to buy new energy vehicles, and at least 20 percent in loans for gas-powered vehicles.

The loan ratio for commercial gas-powered and electric vehicles will remain unchanged at 70 and 75 percent, respectively, the statement said. For secondhand cars, the ratio will remain at 70 percent, it added.

Financial institutions will be encouraged to better support car purchases by reducing or removing penalties incurred by consumers for paying off loans early to trade in old cars for new ones.

A total of 3.13 million passenger vehicles were sold in China in the first two months of this year, up 17 percent year-on-year, according to the China Passenger Car Association. A number of China's electric vehicle makers announced double digit sales gains in March, fueled mainly by price cuts and the rising popularity of NEVs.

The State Council, China's Cabinet, has launched a major initiative to boost spending on NEVs and promote programs encouraging consumers to trade in goods.

According to a policy document unveiled by the State Council last month, China will organize trade-in events nationwide and encourage automobile manufacturers and sales units to conduct promotional activities to boost auto sales.

Cui Dongshu, secretary-general of the China Passenger Car Association, said the latest move by the central bank and the financial regulator will provide a major boost to car sales.

"In particular, it will incentivize more young people to purchase new cars, as the elimination of requirements for minimum down payments would effectively spur their enthusiasm for spending," he said.

Meanwhile, there is also immense potential to improve car sales through incentives for car owners to trade in their old vehicles, he added.

The move will also help financial institutions increase their lending and profits, he added.