Chinese auto sales run into a lending roadblock
Beijing crackdown on shadow banking has made it harder for car buyers to get the loans they need. That could hit domestic auto-maker shares
China’s crackdown on shadow banking has caused some highprofile blowups. Now it’s driving the country’s car makers off course.
One big target for Beijing has been the proliferation of peerto-peer lending platforms — total transactions on these ballooned to 2.8 trillion yuan ($550 billion Canadian) last year, more than 10 times the total in 2014, according to industry website wdzj.com. The worry is that such platforms have become a hotbed for em- bezzlement, or could simply run out of money. Local media reported dozens of them collapsing in the past few months alone. About 20 per cent of the platforms in existence last year disappeared in the first half, according to a state-backed industry group.
New rules introduced late last year to tame growth in P2P lending seem to be hitting the auto sector now.
About 10 per cent of all P2P loans in China were made to car buyers last year, often to young people: That translated into roughly 9 per cent of total in- dustry sales, according to Bernstein.
But P2P car loans are down 18 per cent this year, and this is feeding into fewer auto sales. As lending dwindles, the volume of auto insurance sold for new cars — a proxy for end-user demand — dropped year-overyear for the third month in a row in May, according to Bernstein. The situation is particularly tough in China’s smallest cities, where people are less able to afford cars without some form of credit.
This is bad news for domestic car makers — a big portion of their sales are in low-end markets. Many of their share prices have already plunged. Great Wall Motor and Guangzhou Automobile Group have both dropped more than 40 per cent this year.
That leaves Geely as an outlier. Sure, the stock has also suffered — it’s down 25 per cent this year. But that has come after a strong rally: Its shares have still almost tripled since the beginning of 2017. Geely’s sales have remained strong as its new car models have won market share, but tighter financing conditions could eventually bite. The company’s price-to-forward earnings ratio, at 11 times, is twice that of its rivals, suggesting too much optimism about continuing strong sales has been baked in. Investors in Chinese car makers should steer clear of such potholes.