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Three consumer finance companies get green light

By Shi Jing (China Daily)
Updated: 2010-01-08 08:06

The banking regulator has approved three banks' plans to set up consumer financing companies, as part of the government's efforts to boost domestic consumption.

Bank of China (BOC), Bank of Beijing and Bank of Chengdu are the lenders who would set up the three consumer finance firms.

Under a pilot program, these banks would be allowed to offer personal loans for travel, education and purchases of durables. However, personal loans cannot be used for buying property or cars.

The regulator approved BOC's plan to launch a consumer-finance company with registered capital of 500 million yuan ($73.23 million) in Shanghai's Pudong district. The new firm would not be allowed to take deposits.

BOC would hold a 51 percent stake in the company, while Bailian Group of Shanghai would hold 30 percent. A Shanghai municipal government-owned company based in Lujiazui, the city's financial center, will hold the remaining stake in the consumer-finance firm, expected to start operations by July this year.

China's economic growth has for long been excessively dependent on manufacturing, exports and material consumption, said Li Xunlei, chief economist with Guotai Junan Securities.

Li said it is now crucial for China to achieve more balanced economic development by expanding its domestic consumption sector. "A well developed consumer financing industry can help accelerate the growth of the domestic sector," he said.

Li Mingliang, a macroeconomic analyst from Haitong Securities, said it is important for the banking authorities to further facilitate the operations of the newly formed finance companies.

Consumer financing has been a stable business of many banks and finance companies in Western economies for more than 400 years. Hong Kong, the Asian financial center, has seen many companies of this kind. Cindy Sze, a business insider in Hong Kong, said: "People here always turn to finance companies for help when they need money to repay their credit card debts or just to buy luxury goods."

Sze said she believes that the birth of such companies in Shanghai reflects that younger consumers are becoming less conservative in their spending habits.

But easy credit is not going to turn everyone into a spendthrift yet. "It's too much trouble. I'd rather not buy anything if I have little money at my disposal," said Molly Cheng, a film distributor in Hong Kong. "And I haven't heard any of my friends turning to these finance companies for help. Installments is a better option, I think."

The draft rules for setting up consumer finance companies, were issued in May 2009 and aim to further increase domestic consumption in the country.