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Behind the sudden decline in China's auto sales
Yang Jian | 2018/9/7

SHANGHAI -- After rising 7.9 percent in May and 5.1 percent year-to-date through May, sales of new light vehicles in China increased only 2.3 percent in June; in July, volume fell 5.3 percent.

Industry trade groups and market research firms have produced various theories to explain why the market suddenly ran out of steam. But a website tracking peer-to-peer lending in China has provided one plausible factor. 

Beijing¡¯s crackdown on peer-to-peer lending platforms has helped take the steam out of China¡¯s light-vehicle market, Shanghai-based website found.

In 2015, the Chinese government legalized peer-to-peer lending platforms, which peddle consumer loans online between cash-rich individuals and cash-poor consumers. 

The number of such platforms has mushroomed, topping 8,000 by the end of 2017, according to the People¡¯s Bank of China, China¡¯s central bank.

But it turns out that a large number of the platforms are badly managed. To attract lenders, they promised interest rates several times higher than rates banks paid on savings and other deposits. 

The results were predictable: An increasing number of platform users have defaulted on payments, borrowers have gone dark and lenders now seek government help to recover funds. 

Facing mounting public pressure, government regulators finally reacted this year and moved to clean up such lending practices. By the end of May, 5,704 problematic peer-to-peer lending platforms were closed, leaving 2,902 still in operation, according to the People¡¯s Bank of China.

The crackdown wreaked havoc on new-car sales in China because the lending platforms have become an important source of new-vehicle loans. 

Sanford C. Bernstein, a Wall Street investment bank, estimates that about 10 percent of peer-to-peer lending platform customers in 2017 were car buyers, most of whom were young. 

Bernstein also estimates that car loans from peer-to-peer lenders contributed 9 percent of new-car sales in China last year. Drawing on the statistics provided by, Shanghai-based Shenwanhongyuan Securities, a major Chinese securities firm, believes the contribution rate from peer-to-peer lenders to new-vehicle sales was somewhere between 10 and 15 percent. 

After government regulators stepped in to crack down in May and a large number of P2P lending platforms were shuttered, the impact on auto finance was immediate. 

In June, auto loans provided by P2P platforms in China plunged 29 percent from a year earlier to 16.5 billion yuan ($2.4 billion), according to 

The sharp cutback in lending provides a more convincing explanation for the sudden softening of new-car demand in China than other factors typically cited by analysts, such as a slowdown in economic growth and the escalating trade war with the U.S.

In the second quarter, China¡¯s GDP growth slowed to 6.7 percent from 6.8 percent in the first quarter. On July 6, the Trump administration imposed an additional tariff of 25 percent on Chinese goods worth $50 billion.

It¡¯s true both factors might have affected China¡¯s new-vehicle sales to some extent, but not so soon and so dramatically as Beijing¡¯s crackdown on P2P lending platforms.

And the bad news for carmakers is that China¡¯s central bank announced that it would continue with the crackdown with other government agencies until June 2019. That means it would be hard for the Chinese new-car market to resume growth anytime soon.

Editor's note: Sanford C. Bernstein, a Wall Street investment bank, was misidentified in an earlier version of this story.

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