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Lending rate cut good news for auto industry

By Shangguan Zhoudong (chinadaily.com.cn)
Updated: 2008-09-18 11:49

Industry insiders say the new cut in lending rates will be good news for China's automobile industry.

The National Business Daily quoted insiders as saying the new loan rate, effective from September 16 this year, will help automotive businesses, which generally need huge amounts of loans.

The central bank cut the cost of bank loans on September 15 for the first time since 2002, and lowered the proportion money lenders must have as reserves. It is the first such move in nine years to help keep the economy from sliding further. The benchmark lending rate will be lowered by 0.27 percentage point to 7.20 percent from September 16.

Auto experts pointed out the bank loan cut is a timely aid to boost auto sales in September in the country's auto industry, which suffered a year-on-year sales decline in August.

But the lending rate reduction may also trigger a new round of price wars, experts said.

Some small-sized automakers' capital pressure will be relieved as they are the first to be affected by tight monetary policy, declining auto consumption demands, soaring stocks and prices of raw materials.

"This is a good news for us, we can only depend on bank loans as we can't get financing like large automakers," said an unnamed source at a small-sized automaker in Zhejiang province.

"Loan rate reduction will lower Changan Auto's financing expenses," said Changan's securities representative.

Additionally, the reduction will also benefit auto dealers. Currently, auto dealers are being challenged by difficult loan issuance and high loan rate. They are also bearing high pressures from fund settlement and stocks, according to Lang Xuehong, an expert in auto market research at research firm Sinotrust.

China's vehicle sales posted the first decline of this year in August when domestic auto makers sold a combined 629,000 vehicles, down 6.34 percent year on year, according to statistics from the China Association of Automobile Manufacturers.