The Taiwanese Are Learning How To Borrow

Carol Chen never thought she'd own a car. Her doubt was understandable, considering that an entry-level auto in Taiwan costs about what she makes per year as an executive secretary, or $15,000. But today Chen is driving around Taipei in her new white Nissan March. Thanks to a financing deal from GE Capital Services and its local partner, Yulon Motor Co., she paid just $114 down and financed the rest.

Chen is one of a growing number of Taiwanese discovering the brave new world of consumer finance. Just a few years ago, the cash-rich Taiwanese almost never used credit and bought insurance mostly as a savings vehicle. Now cultural changes and the government's long-overdue liberalization of Taiwan's capital markets have changed the way people manage their money.

BUYER'S MARKET. The potential has attracted big names in consumer credit, banking, and insurance. Companies such as GE Capital and Ford Credit Co. are chasing the $6 billion car market--some 45% of which is expected to be financed in 1994, up from just 29% in 1992. Similar growth can be seen in life insurance and credit cards. "Everyone is scrambling to beat the competition," says Celia Chang, vice-president for consumer banking at Citibank Taiwan.

The dawn of consumer financing broke in 1992, when the government permitted private local banks to compete with the former state-run monopolies. The newcomers allowed consumers to shop around for the best service, interest rates, and products for the first time. Soon foreign banks will be permitted to open as many as five branches a year on the island--up from the current limit of one a year--creating even more of a buyer's market.

Since credit cards were introduced in Taiwan five years ago, the number of cardholders has shot up to 2.6 million. Annual fees average $45, and interest rates are about 18%, with a government-set limit of 20%. Analysts expect 40% growth in the market this year. Card issuers are fighting for business with discounts, extra services, sweepstakes, and quick application processing.

Wild deals can also be found on the car lots. "With all the competition, we're having to be a lot more creative," asserts Jack Hu, a spokesman for Ford Credit. That means offering low interest rates or zero down. Such deals seem to work. When General Motors Finance offered 0% financing on the $34,000 Buick Regal, GE sold its entire stock of 900 cars in just 60 days.

Insurers are also crowding into Taiwan. Aetna Life & Casualty was the first foreign company to set up shop, in 1987, following a 30-year government freeze on new licenses. Today there are 26 foreign insurance companies, mostly U.S. subsidiaries. And earlier this year the government invited foreign insurers from other countries. There appears to be room for everybody: Only 47% of Taiwan's population is insured, vs. 155% in the U.S. and 300% in Japan.

A taboo against talking about death made the Taiwanese reluctant to buy life insurance in the past. But as people and businesses become more leveraged, the Taiwanese want financial protection. Plus, as young people abandon the tradition of supporting aging parents, the older generation needs a safety net. "The changes in the social structure are having a huge impact on the insurance industry," says Malcolm Riddell, a Taipei-based investment banker.

Despite the opportunities, experts advise finance companies to be cautious. In insurance, Taiwan's regulations remain antiquated, registration for new products takes months, and the government sets premiums. For consumer-credit providers, there's no way to check applicants' credit history. Social hurdles remain, too. Many Taiwanese avoid debt at all costs, and they're big savers. The savings ratio rose from 26% of personal income in 1988 to nearly 31% last year.

Financial firms aren't worried. "The environment is changing quickly," says Jeff Schofield of GM Taiwan Credit Sales, "especially among the younger Taiwanese, who are becoming more mature investors and are heavily influenced by the West." If Schofield is right, the boom in Taiwan's finance and insurance industry could just be beginning.

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