Focus
Locals charge ahead with new financing options
By Shen Jingting (China Daily)
Updated: 2010-03-18 07:50
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Consumer finance companies help satisfy materialistic cravings
Shortly after examining an Apple iPhone 3GS, the hottest gadget sold at Dazhong Electronics, Zhang Hongqi told the sales assistant to ring it up.
Wearing a fashionable titanium necklace, designer sunglasses and a black jacket, the 36-year-old is by no means a typical Chinese consumer, who saves far more than he or she spends.
Zhang, who earns 3,560 yuan ($521) monthly at his job at a local food company - not far off the 2008 average of 3,726 in Beijing, according to the Beijing Municipal Bureau of Statistics, has an appetite for fashionable goods.
But because he's on a tight budget he also has a big desire to borrow to fund those luxe products. Now, he seems as interested in checking out a growing array of financing products as in the fancy consumer goods themselves.
He was among the first batch of people in China to satisfy their materialistic impulses with an auto loan and had borrowed money from a bank to buy an apartment a decade ago.
His most recent large purchase, the 5,880-yuan iPhone, was technically bought not from the retailer or a bank, but from a consumer finance company (CFC).
When the sales transaction was completed on March 1, Zhang was informed that he was the first client of a consumer finance company in China, the Bank of Beijing Consumer Finance Co, a subsidiary of the bank.
"Frankly, I have been dreaming about this mobile phone for a long time. It (a consumer finance company) is worth trying because I only pay an additional one yuan per day on average" in interest fees, Zhang said.
After completing the application form, the process took Zhang only 20 minutes. He made no down payment, but will pay 520 yuan back in each of the following 12 months to the consumer finance company.
The interest is 366 yuan per year. Compared with the one-year credit card installment option, which charged 493 yuan the first month as a processing fee, Zhang figured it was a relative bargain.
"Consumer finance companies are very common in many markets around the world, but here, it is still a newly born baby and needs enough space and support to grow well," said Miroslav Kolesar, China chief representative of PPF Group, a leading financial and investment group in Central and Eastern Europe.
PPF Group received approval from the China Banking Regulatory Commission (CBRC) to establish a consumer finance company in Tianjin in February. It is about to launch China's second consumer finance company in May or June in the city. That company will be named Home Credit Consumer Finance (China) and will be solely owned by PPF Group with a registered capital of 300 million yuan.
Its function is to provide loans to low-and middle-income people, helping them buy durable goods such as electric appliances or finance home remodeling projects, weddings and travel.
By the end of the year, China will have a total of four consumer finance companies, with the other two located in Shanghai and Chengdu.
"Customers can get loans directly from the shop," Kolesar explained. "You choose the goods in the shop, and our sales assistant will help you fill in the application for the loan. The data will be sent back to our office system, which is currently located in Shenzhen."
The data is then processed and the client's risk of default is evaluated, he said. The company makes the final decision on whether to grant the loan and informs the shop immediately. If the client is approved, he or she can take the goods home on the spot.
"The approval rate will be about 75 percent and the entire process only takes about 20 to 60 minutes," Kolesar said.
"The procedure is rather simple, as applicants only need to provide us with their ID cards and a second proving documentation, such as a debit card or driver's license."
But some financial experts expressed worries that the new companies might have a tough time attracting customers.
Zhao Xijun, a finance professor at Renmin University of China in Beijing, said commercial banks have already established lending programs that the Chinese public is more familiar with.
"I doubt if these new companies will even be able to get 1 percent of the consumer lending market by the end of this year," Zhao said.
Kolesar takes the opposite view.
"I don't think there is really a direct competition," he said. "They are simply serving different sectors of the market, different kinds of customers, and they can coexist."
According to Kolesar, banks normally target affluent customers and try to provide them with more complicated financial products to diversify their portfolios. Consumer finance companies, on the other hand, seek middle-class and customers of lesser means, he said.
"CFCs are offering more simple products and they are also providing a much faster and easier way to get access to the credit," he added.
"Usually, if you want to enjoy the loan from the banks, the procedure is relatively complicated, even including credit cards, because you have to apply for them in the first place."
Last August, the CBRC chose four cities - Beijing, Shanghai, Tianjin and Chengdu, to launch the pilot programs of new consumer finance companies. The move was part of its efforts to boost domestic consumption.
The Bank of Beijing Consumer Finance Co, which launched operations in March, said it has already talked with major Beijing electronics and home furnishings retailers such as Dazhong Electronics, Gome Electronic Appliances and Easyhome, about allowing people to apply for loans directly in the stores.
