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Consumer Credit Firms Test In China

Consumer Credit Firms Test In China

    The central government yesterday allowed Shanghai and other three cities to set up consumer credit companies in a trial program designed to help direct economic growth into domestic consumption.

    Shanghai, Beijing, Tianjin and Chengdu will help the nation gain experience with these finance firms before they are expanded across the country, the China Banking Regulatory Commission said last night.

    "Consumer credit companies can help boost domestic consumption to support sustainable economy growth," the top banking regulator said. "They will diversify China's financial services and spur financial innovation."

    China is trying to trim its reliance on investment and exports and increase domestic consumption to improve the structure of its economy.

    Consumer credit companies can offer quick, short-maturity, small-sum loans to consumers to facilitate purchases of products such as mobile phones and home appliances.

    They will not be allowed to offer loans for cars or homes, and they will not be able to take deposits from the public.

    Unlike banks, consumer credit companies don't require collateral.

    Early start

    Shanghai has already paved the way for these firms. In May, the Huangpu District teamed up with the Bank of Shanghai, and the Pudong New Area allied with the Bank of China in agreeing to set up these lenders.

    The regulator said it will take prudent steps to test the water for these new loans, including strict requirements on investors, capital and bad-loan provisions.

    The rules require investors in a consumer credit company to be a financial institution with minimum assets of 60 billion yuan (US.78 billion) and have been in business for at least five years, two years of which were profitable. The minimum registered capital requirement is 300 million yuan or the equivalent.

    Consumer credit companies must have a minimum capital adequacy ratio of 10 percent, 2 percentage points higher than the requirement for commercial banks.

    These new companies can channel capital from shareholders in the early stage of operation and turn to China's bond market and banks for capital after their expansion.