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City tapped to pilot consumer finance

SHANGHAI will be among the first cities in China to launch consumer finance companies under a draft plan released yesterday by the nation's banking watchdog.

"Shanghai has been studying a plan for consumer finance firms since December," said Fang Xinghai, director of the Shanghai Financial Services Office. "The Shanghai Bureau of the China Banking Regulatory Commission is leading the effort in the city and has contacted potential investors."

The China Banking Regulatory Commission posted draft rules on the plan for public comment yesterday.

The proposed companies will offer personal loans to finance purchases of consumer durables such as home appliances and electronics. These firms could also issue loans for travel and educational expenses for clients with sound credit records on the consumer goods loans.

The maximum outstanding value of loans will be limited to five times an applicant's monthly income, according to the draft. Credit for home and car purchases will be excluded.

Beijing, Tianjin and Chengdu in Sichuan Province are also among the first cities to run a trial program.

Shanghai is well prepared to set up the new form of finance, and the market demand is huge, Fang said.

Xia Lingwu, deputy director of the general office of the China Banking Regulatory Commission, said the watchdog would launch rules on the program after soliciting public opinion for about a month.

Shanghai's first consumer finance company is expected to be set up in Pudong, which is at center stage in Shanghai's efforts to become a major international financial hub.

Unlike banks, consumer finance firms will be banned from attracting deposits. But they will be able to issue bonds and borrow from the interbank market to raise capital.

Both domestic and overseas companies will be allowed to invest in the new businesses as long as they hold assets of at least 80 billion yuan (US$11.7 billion). And banks could be among the major investors.

"Introducing consumer finance companies is expected to further promote sales for manufacturers and retailers and help to transfer China's growth model from export led to consumption oriented," Chen Qiong, deputy director of CBRC's non-banking regulatory department, told Xinhua new agency yesterday.

Some retailers have already benefited from consumer loans. The CBRC said Suning Appliance Co, Ltd, one of China's leading electronic retailers, had reported a 40 percent increase in sales since it launched appliance credit in cooperation with banks in June 2005.


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