Bank of China, Volvo Sign Financial Services Agreement

BEIJING March 4, 2004; Phelim Kyne writing for Dow Jones reported that State-owned Bank of China said Thursday it has signed a financial services deal with the wholly owned financial subsidiary of Swedish automobile manufacturer Volvo AB.

Under the agreement, the bank and its branch and subsidiary companies will provide Volvo (China) Investment Co. services including long and short-term loans, letters of credit and settlement of foreign exchange, a Bank of China statement said.

The statement said that Bank of China will also issue loans for Volvo's China- based dealerships as well as auto-finance services for purchasers of Volvo construction vehicles and buses and trucks under the brand names of Volvo, Renault and Mack.

The Swedish automobile manufacturer bought the truck business of France's Renault , Renault VI/Mack, in 2001.

The agreement highlights both a move by China's large state-owned commercial banks into new revenue streams, as well as the eagerness of foreign vehicle manufacturers to tap the booming domestic market.

China's banks are scrambling to diversify revenue sources and expand and solidify their financial services market share ahead of a World Trade Organization agreement-mandated full-opening of the bank sector to foreign competition at the end of 2006. China entered the global trade body in December, 2001.

China recorded a 34% year-on-year rise in sales of all types of locally-made vehicles to 4.39 million units in 2003, China Association of Automobile Manufacturers data issued in January indicates.

Foreign automobile manufacturers are forming a new generation of joint venture auto-finance companies made possible by new regulations issued by China's bank regulator late last year.

Those firms will enable buyers to arrange dealership-level vehicle financing that will likely provide a further boost to already strong domestic demand.