Changan Automobile Co Ltd, the Chinese partner of the Ford Motor Co and Isuzu Motors of Japan, said it plans to form a finance unit with China South Industries Group and other investors.

Shenzhen-listed Changan Automobile will control 15.39 per cent of the planned finance company with registered capital of 520 million yuan (US$64.12 million), it said in a statement.

Central government-owned China South Industries will take 68.27 per cent of the finance company, with the remaining shares held by the six other investors.

China South Industries owns Changan Motor Corp - Changan Automobile's parent.

"The finance unit will be launched soon. It is likely to enter the auto finance business in China at least one year after that," Li Jun, an official from Changan Automobile, told China Daily.

Analysts said this is the first step taken by Changan Automobile, the biggest minivan maker in China, into the nation's burgeoning but problem-ridden auto financing business.

Other major Chinese automakers, such as Shanghai Automotive Industry Corp, First Automotive Works Corp and Dongfeng, have already entered the business.

Foreign auto giants, including General Motors, Ford, Volkswagen, Toyota, DaimlerChrysler and PSA Peugeot Citroen, have also started to offer loans to customers in China.

"Vehicle financing is a new thing for Chinese automakers. And they lag far behind foreign giants in experience, expertise and capital," said Yale Zhang, a Shanghai-based analyst with US auto industry consultancy CSM Worldwide Corp.

At present, less than 10 per cent of new car sales in China are financed, and most of those are carried out with money from commercial banks, instead of specialized auto financing companies, according to Zhang.

In developed markets, more than 70 per cent of vehicles are sold with the use of loans.

The biggest problem facing auto financing in China results from inadequate credit risk controls, which has increased defaults for some domestic commercial banks.

Many commercial banks in China raised their standards for vehicle financing, and some even halted the business last year because of bad loans.

Foreign auto giants are not in a hurry to expand their financing businesses in China because of the problem.

"We have taken a prudent course in China," Mike Bannister, chairman of Ford Motor Credit Co, said in May when the company was allowed to provide loans in China.

Ford Motor Credit Co plans to establish "a solid foundation on which to build our long-term operation" in China, Bannister said.

Changan Automobile runs a joint venture with Ford in Chongqing Municipality, making Fiesta and Mondeo cars. The Focus will be produced there from September.

It also has a compact car joint venture with Suzuki in Chongqing.

In May, Changan formed a 350,000-unit engine joint venture in Jiangsu Province with Ford and its Japanese affiliate Mazda.

The parent Changan Motor Corp plans to double its annual output to more than 1 million vehicles within the next two years.

Changan Automobile ended at 5.57 yuan (US$0.69) each share yesterday, up 7.32 per cent.

(China Daily July 28, 2005)