China Busts the Easy Credit Myth

Bertel Schmitt
by Bertel Schmitt
china busts the easy credit myth

So it’s the evaporation of easy credit that caused carmageddon? Don’t tell that to the Chinese. China became the world’s largest car market (as of the first quarter of 2009) with the bulk of its people paying cash for their cars. Until 2004, getting a loan for a car was more or less unheard of in the Middle Kingdom. Even after 2004, one could only finance a maximum of 80 percent of the price, and it was a straight loan for a maximum term of 5 years. To this day, “residual value” is not part of the Chinese language. Interest rates were high, twice that of a mortgage on a home. About 16 percent of cars sales were on credit after the rules were relaxed in 2004. Did that number improve while the world went on a credit binge? No way: In 2008, the number of cars financed had dwindled to 8 percent. There have been attempts to increase that number as part of the government stimulus package, but to no avail. Consumer credit “traditionally hasn’t been the Chinese way,” says the Wall Street Journal. Quite the opposite:

China has one of the highest savings rates on the planet, on average around a quarter of disposable income. Not just the government, the whole nation sits on a huge pile of hoarded cash. Outgoing US Treasury Secretary Hank Paulson even fingered the conserving attitudes of the Chinese as the root of all evil: “In the years leading up to the crisis, super-abundant savings from fast-growing emerging nations such as China put downward pressure on yields and risk spread everywhere.” The Chinese ever so politely told him to get a grip.

Currently, some auto-finance companies operate in China, but their loans are expanding very slowly. China’s Chery wants to change that. They have set up an auto finance company in an alliance with a local regional bank, the first domestic carmaker to do so. “All Chery dealers will eventually be prepared to extend loans to car buyers,” Gasgoo writes in amazement that such an outlandish idea might some day become reality. Don’t bank on it.

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  • U mad scientist U mad scientist on May 29, 2009
    The Unites States is more of an immigrant nation than any other large nation. If what you said is true, and unless your are a native Indian, then you are a direct desendant of a self-selective borderline narcissistic group that moved to this land during the 18~20th century. Notice I didn't judge but only describe. If it makes people motivated to be productive, more power to them. - Crackpot ideals won two world wars, those who stayed in England didn't. High continuous output from geological isolation won those wars. Crackpot ideals tend to be less productive.

  • U mad scientist U mad scientist on May 29, 2009
    Metals have one magical property: limited quantity. Governments cannot “print” gold out of thin air to dilute your holding. With paper, all they need to do is add a bunch of zeroes to the end of the number. Sure, and with a car you can run into a cement wall and kill yourself, but you don't. A sure sign of a crackpot idea are when the idea's already been tried everywhere and got abandoned by everybody because it doesn't work. So my question for the few people who still advocate it: did you not get the memo on why it doesn't work, or do you think repeating the same steps will lead to different results this time?

  • Random1 Pretty excited about this update, I didn't see it available in mine this morning, but any day now... I think only Apple maps will be on the center display, and not Waze yet, but I assume that'll come soon enough. As to the unnecessary Tesla comment above : I'll take the build quality, the looks, and generally normal items that all cars should have over the M3 any day of the week.
  • Jonathan H. The ES production is going back to Japan so it's safe to assume its assembly building will be utilized for the new EV. Seems like a good fit for what will probably be fairly low volume compared to the Camry/Rav4 assembly lines.
  • NotMyCircusNotMyMonkeys how many are shorting this 23 cent (really!) stock?
  • Bobbysirhan These prices will make more sense by the end of July.
  • Kcflyer It fits perfectly in the you will have nothing and be happy agenda. Eliminate affordable transportation for the middle class. The ultra rich will have stuff like this.