The interest rate increase of China's central bank a week ago will have little impact on the domestic car market, according to analysts.

The central bank raised benchmark rates on one-year yuan loans to 5.58 percent from 5.31 percent and that on one year deposits to 2.25 percent from 1.98 percent last Thursday to cool economic growth.

"We have not seen impact of the rate rise as it is very small. The domestic car market maintains a stable track," said Zhu Yiping, the spokeswoman of the China Association of Automobile Manufacturers.

But the association has not revealed auto sales for October.

"The rate increase will not have a big impact on the domestic car market as only a small number of car buyers are using loans at present," said Qian Pingfan, an industry researcher of the Development Research Centre of the State Council.

Around 10 percent of new car sales in China are using loans, down from 30 percent a year earlier, mainly because many Chinese commercial banks have enhanced the threshold for auto financing and even halted business because of concerns about bad loans.

Following the central government's move, General Motors Acceptance Corp's branch in Shanghai raised its three-year and five-year interest rates of auto loans to 6.99 percent and 7.33 percent on Monday from 6.66 percent and 6.99 percent respectively.

"The small interest rate increase is unlikely to change customers' minds about buying cars, as prices of cars in China are much lower than houses in general," Qian said.

For example, if 70 percent of the purchase of a Volkswagen Bora worth 186,000 yuan (US$22,460) is funded by five-year bank loans, customers will only pay more 1,000 yuan (US$121) than they had to before the interest rate increase.

"The rate increase will be nothing for me if I have decided to buy a car. But I will not foot a bill this year because cars will be cheaper next year," said a Beijing white collar worker, Jiang Linyun.

The growth of China's auto market has slowed down sharply this year from last year.

Sales of China-made automobiles grew by 18.4 percent year-on-year to 3.7 million units in the first nine months of this year.

The growth rate was down 34 percent from last year. Growth of passenger car sales declined to 20.7 percent during the period from 75 percent last year.

The main reason for the sales growth plunge is that many customers have delayed buying cars in strong anticipation of further price cuts as producers reduce prices frequently and China will continue to slash tariffs and remove quotas on car imports next year, said Jia Xinguang of the China Automotive Industry Consulting and Development Corp.

"The interest rate increase is too small to affect the car market in the near term. Only if it continue to rise by bigger margins will there be some impact," Jia said.

Zhang Xin, from Guotai & Jun'an Securities Co Ltd, said: "Interest rates alone will not have a big impact on the car market now. We should wait and see further rate trends."

However, car dealers, with heavy inventories, are worried about the interest rate increase.

"The rate rise is likely to further strengthen customers' sentiment to delay buying cars," said Su Hui, general manager of the Beijing Asian Games Village Automobile Exchange.

Car prices on the domestic market will continue to decline next year and are expected to be stable in 2006, Qian said.

Most prices for cars made in China, including Audi and BMW, have been reduced so far this year.

China will cut tariffs on auto imports to 30 percent next year and to 25 percent in the middle of 2006 from 34.2-37.6 percent now in line with its commitment to the World Trade Organization.

(China Daily November 4, 2004)