Friday, January 16, 2009

PBOC Steps in to Help Auto Industry

Yesterday, I noted that the market wasn't thrilled with the State Council's apparently hastily arranged package of support for the auto industry, and that surely more help must be forthcoming. Today, the Central Bank has also stepped in to lend a hand.

The PBOC, China's Central Bank, convened a meeting yesterday with members of the auto industry. The primary outcome of the meeting was for the bank to announce its support for increasing the channels of funding for the auto industry. (Caijing 16 Jan 2009)

Among the provisions announced were:
  • an increase in loans to auto firms
  • an increase in auto loans to consumers
  • support for an increased use of corporate bonds
  • promotion of auto loan securitization (packaging of loans for sale to investors)
  • further development of rental and insurance services
In short, the Central Bank wants to help the auto industry to build more long-term and stable sources of finance, and to find more ways to spread risk.

Securitization in general was approved as early as 2005, but until now, only ten of China's automakers have been specifically approved to securitize their customers' auto loans. Most automakers have had to rely on a combination of bank loans and retained earnings for funding. Securitization will help to free up capital for more useful purposes such as working capital or R&D.

This is especially important for those companies that are designing their owns cars rather than simply assembling cars for a joint-venture. The State Council has announced explicit support for helping to promote home-grown auto brands (自主品牌), but this requires a massive amount of R&D expense, a burden with which the Chinese-foreign joint ventures do not have to be concerned (because the R&D has already taken place in the U.S. or Japan or Korea or wherever).

Unfortunately, the announcement was lacking in some important details such how some of these measures of support would be carried out. (This is actually quite typical for such announcements: high-level folks announce the goal, and lower organizations are expected to deal with implementation.)

Also, there was no mention of whether this support is extended to private as well as state-owned firms.