Chinese English

In China, the Development of Consumer Credit Loans Faces Obstacles


The development of the consumer credit loan business has been seriously impeded by a number of factors, according to an article in the Study Times. Consumer credit loans occupy an important position in the strategy of stimulating domestic demand to spur economic development.
 
China has allowed some commercial banks to conduct consumer credit loan business on a trial basis since the late 1990s. From 1998, the People's Bank of China, the country's central bank, began to issue regulations governing credit loans for housing, cars, education and general consumption, thus setting up a legal foundation for consumer credit loan business.

Though the past several years have witnessed rapid growth of the business, China still lags far behind developed countries in terms of total amount of credit loans, the variety of the services offered and the public's awareness and utilization of this kind of new business, the article said.
Furthermore, only when people are assured stable higher-level incomes can the credit loan business develop to full maturity, the article pointed out.
 
The experience of developed countries indicates that the consumer credit loan business cannot really get under way until the per capita GDP exceeds US$3,000. Only the ratio of annual household income to the price of residential apartments reaches one to six are individual consumers in a position to apply for and repay housing credit loans. When a household's annual income is equivalent to the cost of a car, they can afford to buy one.

Take Shandong and Jiangxi provinces as examples. The number of residents in the two provinces who meet the criteria cited above is rather small. By the end of last year, the per capita disposable income of the urban residents in both provinces was only 6,490 yuan (US$782) and 5,104 yuan (US$615) respectively.
 
Low income levels are the main obstacle restraining the development of consumer credit loan business in the two provinces, a factor which cannot be rectified in the short-term, the article said. Uncertainty about expected income and expenditure also has a direct impact on the credit loan business.

For example, in recent years, a series of reforms have been carried out to abolish the free allocation of houses and free education and medical care. The country's new social security system, however, is still in its fledgling phase while some welfare programmes have been eliminated.
 
In addition, with the increasingly fierce competition in the labour market, the deepening reform of State enterprises and government institutional restructuring, the risks of being laid off have risen significantly.
 
As a result, a number of residents in the low and middle-income groups have been toning down their predicted income, which in turn makes them less certain about their financial security and less likely to spend.
 
The inadequate personal credit system is another factor contributing to the sluggish development of the consumer credit loan business, the commercial banks have complained.

Currently, only Shanghai has established a trial personal credit system.

Without such a system in place, banks have to conduct their own investigation into borrowers' credit status such as identity, income, taxation and past credit record before making lending decisions. This has not only made the application procedure complicated and increased the banks' costs and potential risks, but also inconveniences customers, thus dampening their enthusiasm for applying the loans.
 
Furthermore, with the absence of a personal credit verification system, some customers use fake personal credit data to acquire loans or use the same mortgage property repeatedly to apply for loans in a series of different banks, engendering great risks for these banks.
Another factor making banks reluctant to issue consumer credit loans is that banks usually offer long-term credit but only have short-term deposits. The imbalance tends to lead to the shortage of working capital.
 
Generally, consumer credit loans are mid-or-long-term ones ranging from three to 20 years while most of the deposits in commercial banks are one-year term deposits.
 
Source: China Daily - North American Edition

Created on 2001-11-19 12:17:15 by HKCCMA.

Last Edited on 2011-04-12 12:17:15 by HKCCMA.