Auto loans turn into mountain of bad debts in China

Chinese banks have piled up a mountain of bad debt after lending money to car buyers who can't afford the payments, a senior researcher told Xinhua on Tuesday.

The bad bank debt relating to car loans has reached 100 billion yuan (12.5 billion U.S. dollars), with 81 percent owned by the "Big Four" state banks namely the China Construction Bank, the Bank of China, the Industrial and Commercial Bank of China and the Agricultural Bank of China, said researcher Chen Xinnian with the National Development and Reform Commission.

He blames the lack of a sound individual credit system in China for the bad loans.

Some car buyers even provided false information in their loan applications, he said.

To prevent their bad debts from swelling, banks have become increasingly cautious in extending car loans and the evaluation of personal credit ratings.

He said that the increasing demand for bank loans for expensive items such as houses and cars has helped boost China's economy but they need to be supported by a sound credit rating system.

"The establishment of a personal credit rating system is urgently needed to secure the healthy growth of consumer credit," Chen said.

Source: Xinhua