German automaker Volkswagen's financial arm announced on Friday that its wholly-owned affiliate in China has received approval from the China Banking Regulatory Commission (CBRC) to offer loans to local vehicle buyers with renminbi.

Volkswagen Financial Services AG has invested 500 million yuan (US$60.4 million) of equity capital in its Beijing-based branch, Volkswagen Finance (China) Co Ltd, the company said.

"We are proud to be the first and currently the only foreign auto financial services provider with a 100 percent subsidiary in China. We are confident to start operations within the next four to eight weeks," said Burkhard Breiing, chairman of Volkswagen Financial Services AG.

Last week, General Motors Acceptance Corp announced that its joint venture with Shanghai Automotive Industry Corp (SAIC)'s financial unit has gained the final nod from CBRC to start operations.

Ford Credit and Toyota's financial arm have also been approved by CBRC to prepare wholly-owned auto financing operations in China.

"Initially we plan to offer vehicle financing to private customers," said Klaus-Uwe Schaffrath, general manager of Volkswagen Finance (China) Co Ltd.

"Our close co-operation with the authorized dealerships and Volkswagen's joint ventures (in China) represents a completely new business model for the Chinese market."

The auto financing services will help boost Volkswagen's sales in China, the company said.

Volkswagen, the biggest foreign car maker in China, now operates two joint ventures with the nation's top two automakers - SAIC and First Automotive Works Corp. Volkswagen aims to increase sales in China to 800,000 cars this year from 697,000 units last year.

Analysts say that auto financing has tremendous growth potential in China but faces obstacles mainly from the lack of a sound credit system in the nation.

Many commercial banks in China have raised the threshold for auto financing and even suspended the business this year based on concerns of bad loans.

Less than 10 percent of total new car sales in China use loans now, down from 30 percent a year ago.

(China Daily August 14, 2004)