Seeing the profit potential in the auto financing sector, China's automakers, including FAW Group, Chang'an Automobile Group Co, Brilliance Auto and Jianghuai Auto, are awaiting government approval to set up their own financing arms.

On August 31, China's banking regulator and the central bank issued rules to allow auto financing and financial leasing companies to raise money by issuing bonds, a move to boost auto sales and develop the auto financing industry.

The rules will enable financial leasing companies to enlarge their capital and help small- and medium-sized enterprises to expand, the People's Bank of China said in a statement on its website. Auto financing companies will be able to increase loans and spur demand for cars, it said

According to the central bank, by the end of July, China's 12 financial leasing companies had total assets of 108.1 billion yuan (US$15.8 billion) and the 10 auto financing companies had total assets of 37.8 billion yuan.

"The financing channel has been the bottleneck for China's auto financing companies for a long time. Permission for them to issue bonds will spur the development of the segment and accordingly drive sales in the domestic auto industry," said Jia Xinguang, chief analyst with the Chinese National Automotive Industry Consulting and Development Corp.

"The auto financing service can also bring profits to auto companies and the necessary diversification will orient new businesses and realize economies of scale for the automakers," said China Jianyin Investment Securities in a report.

"With the support of the government and the development of the market, we predict that after 10 years, the percentage of Chinese buying cars through mortgages will increase to between 40 and 50 percent," said Lang Xuehong, chief auto industry analyst at Sinotrust.

"China's auto financing market may touch 550 billion yuan by 2025."

However, Jia said the government should ease regulations on auto financing channels to boost the industry's development.

"The current rules on bonds issue are still restrictive and limited, and are not applicable to most of the auto financing companies," said Jia.

To qualify for issuing bonds, companies will be required to have three consecutive years of profit and profit in the third year must be no less than the industry average. The companies also must have stable earnings prospects and their net assets must be at least the same as the industry average, the banking regulator said.

(China Daily November 3, 2009)