The Chinese have been changing their minds about borrowing money to buy a car. Once, it was common to save until the full purchase price could be obtained. In 2013, a mere 18 percent sought financing for an automobile. By 2015, nearly 30 percent of Chinese car buyers used credit to get behind the wheel. Compared to the 80 percent car loan rate in the US, this might not seem impressive, but it is predicted that the Chinese car loan rate will be 50 percent by 2020. Li Wei, VP of the China Car Loan Alliance, said there are several reasons this is a very promising industry — “In China, there are 19.4 billion people.”
Wei founded Jiu Rong in 2013 with 2 million rmb as startup capital. Prior to that, the company was engaged in the traditional finance sector. It started with a group of seven individuals operating a credit union, then in 2014 they began offering regular mortgage loans. The company received a 50 million rmb investment from a Hong Kong investor in 2015, which helped improve their cash flow situation. Today, they only deal in car mortgages.
Jiu Rong is one of the few companies that provide car mortgages in China. Unlike competitors, they are based in the undeveloped areas in the southwest and central parts of the country. They have offices in the big cities for strategy but have more than 1,300 people in 32 locations all over China.
A Chinese buyer will put a mortgage on the car license after providing information about family, contacts, and other personal data. In case of default, the company installs a GPS monitor on the vehicle so an employee can find it and drive it back for resell.
“We lend 80 percent of the car’s estimated value,” said Wei, “so in a default, we only get 80 percent of the value when we sell it.”
Wei said the company has a 3 percent default rate. Most of the defaulters pay off their loan to get the car back. Last year, Jiu Rong lent $600 billion. The company is planning to expand into more provinces this year and has a financial supply chain business that will lend $230 billion this year. They also plan to establish a logistics company in 2017.
Written with Nicki Jacoby.