Stoked by central bank support, shares of Chinese automakers charge higher

[August 26, 2015]  By Kazunori Takada and Norihiko Shirouzu

SHANGHAI/BEIJING (Reuters) - Shares of Chinese automakers rallied on Wednesday after China's central bank cut reserve requirements for auto and financial leasing companies in its latest round of policy easing to boost the country's slowing economy and a stumbling stock market.

The People's Bank of China on Tuesday cut interest rates and reserve requirement ratios for banks by 25 basis points and further lowered reserve requirements for auto and financial leasing companies by an additional 300 basis points.

The policy support is a welcome shot in the arm for the world's biggest auto sector. Sales have slowed to their weakest in at least seven years, with both domestic and foreign carmakers hit by softer demand and higher competition.

Shares of top Chinese automaker SAIC Motor Corp <600104.SS> rose 7.6 percent, while rival Dongfeng Motor Group <0489.HK> gained 3 percent as of late morning trade. Both outperformed the broader market.

"This means financing companies will be more active in helping automakers and dealers sell more cars though lower loan interest rates and such, so this is all positive," said Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight.

"But most car buyers still make their purchases with cash, so this is still a symbolic and indirect help at best on the showroom floor," he said.

The auto-financing penetration rate in China stood at 22.6 percent in the first half of 2015, up from 19.6 percent a year earlier, according to analysts at Bernstein.

Automakers have been struggling to boost their sales in China, with recent market volatility adding to worries about a further slowdown in the market.

Vehicle sales in China tumbled 7 percent in July, taking the year-to-date growth to just 0.4 percent, according to China Association of Automobile Manufacturers.

Highlighting the struggles facing carmakers, Suzuki Motor Corp <7269.T> President Toshihiro Suzuki said the Japanese firm will need to adjust Chinese production capacity, currently about double the number of cars it sells in China now.

(Editing by Ryan Woo)

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