Ah, the Sweet Smell of Validation

Two years ago, when wondering why there are so few small cars in China, I hypothesized:

Chinese banks are not particularly customer focused, and are reluctant to give car loans to anybody whose income level is not high enough to make a midsize car affordable. Chinese banks would have little or no experience with consumer finance, and without competition from foreign banks, they would have no incentive to create consumer finance products either. That makes life difficult for anybody who wants to upgrade from a motorcycle to a small car.

And this year, Andy Mukherjee writes:

The problem of financial underdevelopment isn’t restricted to home loans. Since credit checks are perfunctory, cards come with low spending limits and have lukewarm acceptance. Auto finance is still in its infancy. A survey conducted in April last year by consulting firm KPMG LLP and Taylor Nelson Sofres Plc, a market researcher, showed that while 25 percent of car buyers in China had access to finance, few actually opted for it.

A warm fuzzy feeling pervades. This still doesn’t prove that the lack of small cars in Qingdao is because there are no auto finance companies there, but it strengthens my hypothesis. Such joy. Such joy.

3 Responses to Ah, the Sweet Smell of Validation

  1. Vivek Kumar says:

    I smell hay.
    You must be clutching at straws.

  2. Masabi says:

    But it are just natural that the car loan market is underdeveloped in China. That’s what the word “developing” is supposed to mean! And in any case, I’m not sure your theory holds. Everybody in China is getting richer while small cars are surely getting cheaper (or at least more expensive at a much slower rate), which would mean people who would originally opt to save up for two-wheelers would now save to buy their first small car.

    If you really want to talk about crazy phenomena, talk about how India has for all practical purposes bypassed the 30-year house mortgage phenomenon to move directly to reverse mortgaging. Think of what the banks will pay poor homeowners in Bilekahalli today!

  3. Aadisht says:



    Masabi – the car loan market being underdeveloped was my conclusion, not my starting point when I was thinking about this a couple of years ago. The jump from a motorcycle to a small car is much higher than the jump from a small car to a large car. If you don’t have access to credit, making that jump takes a while.

    Move directly to reverse mortgaging? Shirley you jest. That product has flopped miserably, across banks, across markets.

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