Chinese Cash Squeeze Starts to Impact Economy

According to China Automobile Dealers Association, cash squeeze has spread beyond non-financial companies so that it prompt auto dealers to cut vehicle orders and slow expansion plans to conserve cash. The fact is that auto 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.

 

From Bloomberg:

 

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.