Chinese Cash Squeeze Causes Auto Dealer Panic

Chinese Cash Squeeze Causes Auto Dealer Panic, Group Says

By Bloomberg News  Jul 9, 2013

China’s money-market squeeze, which sent interbank borrowing costs soaring last month, may prompt auto dealers to cut vehicle orders and slow expansion plans to conserve cash, according to an industry group.

“The cash crunch has led to psychological panic among dealers over access to financing,” Luo Lei, deputy secretary-general of the China Automobile Dealers Association, said in a telephone interview from Beijing today. “So far, it hasn’t caused any real damage to the industry, but if the cash crunch continues, the impact will spread to auto dealers.”About 28 percent of dealers surveyed said they felt “anxious” about their funds last month, up from 11 percent in May, the trade body said in a statement today. Only 21 percent of respondents said they had ease of access to financing in June, down 27 percentage points from a month earlier, the survey showed.

The survey’s findings add to signs that the cash squeeze has spread beyond non-financial companies. China Rongsheng Heavy Industries Group Holdings Ltd. (1101) earlier this month said it sought government financial support and is in talks with financial institutions about renewing credit facilities.

Vehicle dealers in China typically rely on lines of credit from banks to finance their orders for vehicles from automakers. They also take out loans to pay for construction of new outlets. About 85 percent of buyers pay for their auto purchases by cash, which helps ease the pressure on dealers, Luo said.

Credit Hole

China’s money-market cash squeeze is likely to reduce credit growth this year by 750 billion yuan ($122 billion), an amount equivalent to the size of Vietnam’s economy, according to the median estimate in a Bloomberg News survey of 15 analysts last week.

June credit data due as soon as this week will give investors clues to how much the cash squeeze, which sent interbank borrowing costs soaring to records last month, is affecting the world’s second-biggest economy. In the latest sign of financial strains in China, state media have reported that the northern city of Ordos has resorted to borrowing from companies to pay municipal workers.

The dealer association’s survey also found that 56 percent of respondents reported a decline in demand in June, compared with 23 percent in May.

The state-backed China Association of Automobile Manufacturers is scheduled to release wholesale vehicle sales data tomorrow.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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