Global carmakers have been funding their financial units' expansion by selling off their loans in the form of asset-backed securities to beef up their operations in China. That frees up money they can use to lend to Chinese consumers.

So far this year, the financing units of Ford, BMW, Volkswagen AG, Nissan Motor Co Ltd and Toyota Motor Corp have each issued around 800 million yuan ($128.85 million) of asset-backed securities.

Growing sector, relative low risk

The country's automobile association forecast the auto financing industry to more than double to 525 billion yuan ($84.55 billion) by 2025.

In an email to Reuters, GMAC-SAIC Automotive Finance Co Ltd, the financing joint venture of General Motors Co in China, said auto financing will be "integral in facilitating sales" in the world's biggest auto market.

Bankers and analysts say the chances of car loan defaults are limited in China because the country requires a large down payment - 20 percent for new cars. Consumers here also have a higher savings rate compared with other countries like the United States.

"It is viewed as a future source of income rather than a source of default and losses," said Patrick Steinemann, co-head of Asia Industrials Investment Banking at Bank of America Merrill Lynch in Hong Kong.

Indeed, GM's China chief, Matt Tsien, said financing has proved a "steady business" in China.

"One of the characteristics in the Chinese market that's very good for the financing business is that default rates tend to be very low," he told Reuters in Detroit. "So the risks are pretty good in that sense. People tend to pay up," Tsien said.

Such a rapid expansion in auto financing does have risks, coming at a time when worries are mounting over the country's corporate and government debt. These include the fact that, relatively, Chinese consumers have a short credit history.

One executive at Toyota said the Japanese carmaker has encountered some fraud cases involving fake IDs that first appeared about a year ago in southern China and then began spreading to other parts of the country.

Toyota uses a set of risk assessment tools modeled around those used in other countries and refined to local practices in China that are being used by global carmakers, two Toyota executives said. Both declined to be identified because they were not allowed to speak the media.

Toyota has further beefed up its loan assessment process and on occasions turn to the old-style approach of home visits, they added.

"Home visits are still the most direct way of verifying customer addresses, but due to time and labor requirements we can only use it sparingly," one of the executives said.

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