China Eases Auto Loan Rules to Boost Car Sales — Update

China's central bank relaxed a ceiling on automobile loans in an effort to boost car purchases as Beijing seeks to stimulate consumption, pledging more efforts to drive domestic demand and boost confidence.

The country's financial institutions now have full autonomy to decide the down payment levied on car loans for individuals, the People's Bank of China said in a statement Wednesday. Loan ratios for commercial vehicles and second-hand cars remain unchanged.

China previously allowed lenders to offer auto loans of up to 80% of prices for internal-combustion-engine vehicles and 85% for new-energy vehicles, which include electric cars and plug-in hybrids.

Car sales in China, the world's biggest auto market, have been volatile in the past year. In February, passenger car sales fell 21% from a year earlier, according to the China Passenger Car Association. The industry group forecast sales growth of 3.7% for March, driven by government incentives and price cuts by automakers.

Wednesday's announcement comes as Beijing grapples with tepid consumer demand that has been dented by a protracted property slump. While a recent run of upbeat data has shown signs of a stabilizing economy after government stimulus kicks in, consumption still remains a main laggard and economists say deflationary pressures are likely to persist and that Beijing needs to roll out more support to reach its ambitious growth target of around 5% this year.

In a separate statement issued Wednesday, the central bank said it would support the country's lenders to replenish capital and guide financial institutions to ramp up longer-term loans to the manufacturing sector. It also pledged to keep liquidity at a reasonably ample level and better implement already-introduced policies, hinting that no aggressive new easing measures will be introduced in the near future.

The bank promised to guide banks to channel more financial resources to the "real economy," which includes sectors such as manufacturing and technology. China's policymakers have grown concerned that their recent monetary policy support has led to excessive liquidity in the banking system that isn't being funneled into the real economy. In the past year, Beijing had cut banks' reserve requirements and guided down lending rates several times to aid the country's faltering economy.

Last month, Premier Li Qiang warned that cash shouldn't be circulating in the financial system for no good reason, while a senior PBOC official said authorities were doubling down efforts to monitor idle funds with a focus on corporate loans being converted into deposits or lent again to third parties.

Acknowledging that China still faces challenges from inadequate demand and weak expectations, the bank said Wednesday that it would double down on its implementation of the counter-cyclical adjustment, a phrase that points to policy efforts to address short-term economic volatility.

The central bank also noted the world's second-largest economy is facing an external environment that is becoming more complicated and grave amid insufficient global economic growth momentum. Inflation elsewhere is declining but remains sticky, with interest rates in developed economies still high, it added.

The central bank reiterated its intention to enrich the country's monetary policy toolbox without mentioning trading treasury bonds. A months-old speech by China's top leader on treasury bonds last week stoked speculation around aggressive monetary easing from Beijing. While economists have generally shrugged off such a possibility, some say that more trading of treasury bonds could expand PBOC's toolkit and bring the bank more in line with practices adopted by peers in developed markets.

China's central bank is prohibited by law from directly purchasing government bonds in primary markets, and it has generally refrained from such purchases in secondary markets in the past two decades. Goldman Sachs economists said last week that the central bank might start indirect purchases of treasury bonds to alleviate pressure from the supply shock that may stem from Beijing's planned issuance of 1 trillion yuan ($138.30 billion) of special treasury bonds in 2024.

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April 03, 2024 08:08 ET (12:08 GMT)

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