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August 15, 2009

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Home » Business » Finance

Novel plan to boost credit use

SHANGHAI'S first consumer credit company is expected to become a reality soon as the relevant bodies in the city moved quickly to ensure the opening up of the financial market.

The Bank of China has agreed to set up a consumer credit company in the Pudong New Area as controlling shareholder, Gu Jianhua, an official from the area's Financial Institutions Service Office, said yesterday.

The new firm will have a registered capital of 500 million yuan (US$73.21 million), higher than the regulatory minimum of 300 million yuan.

"We will attract more investors such as guarantee companies, card companies, commercial institutions and the financial district in Pudong to join the program," said Gu, who is in charge of the scheme to set up a credit company in Pudong.

"Pudong has gained experience in trying financial innovations, and we will actively push this program."

China on Thursday allowed Shanghai, Beijing, Tianjin and Chengdu to set up consumer credit companies in a trial scheme to boost domestic consumption to boost economic growth.

Different from credit cards and banks, the consumer credit companies can offer quick, short-maturity, small-sum loans to consumers to facilitate purchases of products such as home appliances. They can charge up to four times the benchmark interest set by the People's Bank of China.

The companies are not allowed to offer loans for cars or homes, and they will not be able to take deposits from the public. They also don't require collateral for the loans they offer.

"We will charge more competitive interest rates than credit card companies and offer a longer loan life than credit cards," Gu said yesterday.

The owners of the Pudong consumer credit company plan to send an application to the banking regulator in November to set up the company.

Meanwhile, Huangpu District is also spearheading the setup of a similar company. The district government, the Bank of Shanghai and the Bailian Group have signed a deal to set up a consumer credit company in the district, which is one of Shanghai's major commercial areas.

The parties will meet next week to release details on the plan and will apply to the banking regulator soon.


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