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How to calculate the size of the Chinese auto leasing industry?

2019-05-27 09:50 Monday

Tied to the world's most populated country, China's auto leasing industry is making strong headway as it catches up with other nations in the Asia-Pacific region and the West.

the Chinese auto leasing industry

But calculating how big the auto finance market is exactly has come down to something of a fine art.

To do this correctly requires taking a number of statistics, figures and assumptions into account. We know that the auto leasing business has huge potential for growth – so it is a worthwhile exercise to figure out just by how much.

Using official channels, the exact volume is impossible to retrieve; auto leasing registrations are indistinguishable from other types of registration at the moment, and leasing companies do not publish annual figures.

The biggest potential for error comes from the product line; operational leasing (also known as long term leasing) and lease-loans are often bundled together to state the size of the auto leasing market, creating the impression that the Chinese leasing market is already big, albeit modest in comparison with European or Japanese volumes.

It is broadly possible to compare operational leasing with lease-loan. Traditionally, operational leasing appeals best to companies, clients who like to change their vehicle of choice often, clients who are looking for risk-free solutions and clients who are looking for all-in solutions.

Conversely, lease-loan has been favored by those in consumer finance who don't have access to the standard bank loans and those without enough cash to pay the high deposits demanded.

In China, some of the main players adopting an OEM-affiliated strategy for auto leasing are Herald International (BMW), Toyota Leasing, VW New Mobility, Mercedes-Benz and Anji.

Others, such as Yongda Finance Leasing, have followed an auto dealership-affiliated model.

Furthermore, those companies who have tapped into the Internet-only approach include Yixin Capital (comprising JD, Tencent and Baidu), Huashen and Souche.com (Alibaba). There are certainly already a wide range of companies already operating in this lucrative fintech sector.

Some 23.5 million cars were sold on the Chinese market in 2018. Of overall sales, about 60% were paid for in cash, leaving only 40% to be financed. That corresponds to a vehicle financing market of 9.4 million units or US$188 billion (at an average of US$20k per car).

Traditional bank loans funded 93% or 8.7 million cars, leaving the remaining 7 percent for what is generically called "Leasing".

This part, worth 658,000 vehicles, is often used as the reference number for China's car lease volume, but is in reality it is mainly lease-loan (about 630,000 units) and a minority of operational leasing (estimated conservatively at 0.1%, or 28,000 units).

If we take these figures to be true, the annual value of China's auto leasing market is a mere US$ 900 million. By way of comparison, the car leasing market in Belgian value exceeds EUR3 billion per year.


Closer to the European concept of a Finance Lease, the lease-loan model has become so popular in China mainly because it is easier for customers to be approved by lenders in comparison to small loans from the major banks.

Since most Chinese pay for their cars in cash, those left to apply for traditional bank products tend to be cash-poor. Conversely, banks tend to be careful with any personal loans, especially for cars, and ask for collateral upfront.

With a personal loan from such financing channels, the customer remains the owner of the asset (the car), so a guarantee needs to be made from somewhere else – a property, for example, or a secondhand auto.

In a lease-loan arrangement, the "leasing company" remains the owner of the asset and the risk is reduced. It is a lower risk scenario, therefore customers will find it easier to get approved.

Market forecast

The growth of the Chinese economy is, not only because of the trade war, slowing down. This is reflected in car sales volumes, as consumers are postponing making bigger purchases. Under normal circumstances, this would also mean that the leasing market is shrinking.

Lately however, the Chinese consumer is becoming more risk adverse and is starting to accept paying a price to mitigate risk. Operational leasing providers in particular could use this momentum to increase their market share, say analysts.

In the next 10 years, the Chinese leasing industry is likely to grow to a trillion RMB market. The competition is intensifying as more players step into the arena, each equipped with unique skill sets to be leveraged.

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