Measures for the Administration of Auto Finance Companies

(Promulgated by the China Banking Regulatory Commission on, and effective as of, January 24 2008.)

Order of the CBRC [2008] No.1

PART ONE: GENERAL PROVISIONS

Article 1: These Measures have been formulated pursuant to laws and regulations such as the PRC Banking Regulation Law and the PRC Company Law, in order to strengthen the regulation of auto finance companies and promote the healthy development of the auto finance business in China.

Article 2: For the purposes of these Measures, the term “auto finance company” means a non-bank financial institution whose establishment has been approved by the China Banking Regulatory Commission (the CBRC) to provide financial services to purchasers and sellers of motor vehicles in China.

Article 3: The name of an auto finance company shall contain the words “auto finance”. Without the approval of the CBRC, no work unit or individual may engage in auto finance business or use words such as “auto finance” and “auto credit”, in the organization's name.

Article 4: The CBRC and its agencies shall oversee auto finance companies in accordance with the law.

PART TWO: ESTABLISHMENT OF, CHANGES TO AND TERMINATION OF THE BUSINESS OF AN ORGANIZATION

Article 5: To establish an auto finance company, the following conditions shall be satisfied:

(1) having investors that satisfy the provisions hereof;

(2) having the minimum registered capital specified herein;

(3) having articles of association that comply with the PRC Company Law and the provisions of the CBRC;

(4) having directors and senior management personnel who have the qualifications for their positions and qualified working personnel who are familiar with the auto finance business;

(5) having sound corporate governance, internal controls, operation of business, risk management and other such systems;

(6) having a place of business, security measures and other facilities appropriate to the business; and

(7) other prudential conditions as specified by the CBRC.

Article 6: The investors in an auto finance company shall be enterprise legal persons established in accordance with the law in China or abroad and the principal investor among them must be an enterprise that produces or sells whole motor vehicles or a non-bank financial institution.

Article 7: Among the investors in an auto finance company, at least one shall have at least five years of extensive experience in auto finance business management and risk control.

If the investors in an auto finance company do not satisfy the conditions set forth in the preceding paragraph, they shall bring into the auto finance company a qualified professional management team.

Article 8: A non-financial institution entity that is an investor in an auto finance company shall satisfy the following conditions:

(1) having, in the previous year, total assets of not less than
Rmb8 billion or the equivalent in a freely convertible currency and annual revenue of not less than Rmb5 billion or the equivalent in a freely convertible currency (as reflected in consolidated accounting statements);

(2) having net assets as at the end of the most recent year of not less than 30% of its total assets (as reflected in consolidated accounting statements);

(3) having good business results and having been profitable in the two most recent financial years;

(4) the source of the funds for the acquisition of the equity interest being genuine and lawful; it may not acquire the equity interest by borrowing the funds or by way of entrusted funds from a third party;

(5) being in compliance with the laws of the place where it is registered and not having committed a major violation of laws or provisions in the two most recent years;

(6) undertaking not to transfer the equity of the auto finance company held by it for three years (unless the CBRC orders it to transfer such equity in accordance with the law), and the same being specified in the articles of association of the proposed company; and

(7) other prudential conditions as specified by the CBRC.

Article 9: A non-bank financial institution that is an investor in an auto finance company shall, in addition to satisfying the conditions specified in Items (3) to (6) of Article 8, have registered capital of not less than Rmb300 million or the equivalent in a freely convertible currency.

Article 10: The minimum registered capital of an auto finance company shall be Rmb500 million or the equivalent in a freely convertible currency. The registered capital shall be one-time paid-in monetary capital.

The CBRC may raise the minimum registered capital amount based on the development of the auto finance business and the requirements of prudential regulation.

Article 11: The establishment of an auto finance company must pass through the two stages of preparation and commencement of business. When applying to establish an auto finance company, the principal investor shall act as the applicant and submit the application materials for preparation and for commencement of business in accordance with the China Banking Regulatory Commission, Requirements in Respect of the List and Format of Application Materials for Administrative Permissions for Non-bank Financial Institutions. The Chinese versions of the application materials shall prevail.

Article 12: An auto finance company may not establish branches or sub-branches without the approval of the CBRC.

Article 13: The CBRC subjects the directors and senior management personnel of auto finance companies to a system of approval of their qualifications for their positions.

Article 14: If any of the following particulars of an auto finance company are to change, the approval of the CBRC shall be required:

(1) a change in company name;

(2) a change in its registered capital;

(3) a change in its domicile or place of business;

(4) a change in its scope of business;

(5) a change in its organizational form;

(6) a change in its equity or an adjustment of its equity structure;

(7) a revision of its articles of association;

(8) a change in directors or senior management personnel;

(9) a merger or division; or

(10) another change as specified by the CBRC.

Article 15: Subject to the approval of the CBRC, an auto finance company may be dissolved if:

(1) the term of operation specified in its articles of association expires or another cause for dissolution as specified in its articles of association arises;

(2) the highest authority of the company as specified in the articles of association resolves to dissolve it;

(3) the company needs to be dissolved due to a merger or division; or

(4) another mandatory reason.

Article 16: Subject to the approval of the CBRC, a petition for bankruptcy may be filed with a court if an auto finance company:

(1) is insolvent and its assets are insufficient to discharge all of its debts or it clearly lacks the capacity to discharge such debts and it voluntarily files for bankruptcy or does so at the request of a creditor; or

(2) while being liquidated following dissolution or being closed down, the liquidation committee discovers that its property is insufficient to discharge its debts and filing for bankruptcy is required.

Article 17: If the business of an auto finance company is terminated following dissolution, being closed down in accordance with the law or being declared bankrupt, its liquidation shall be handled in accordance with relevant state laws and regulations.

Article 18: The administrative permission procedures for the establishment of, changes to and termination of the business of auto finance companies and the approval of the qualifications of the directors and senior management personnel thereof for their positions shall be carried out in accordance with the China Banking Regulatory Commission, Implementing Measures for Administrative Permissions for Non-bank Financial Institutions.

PART THREE: SCOPE OF BUSINESS

Article 19: An auto finance company may, with the approval of the CBRC, engage in some or all of the following renminbi business:

(1) accepting time deposits of at least three months from foreign shareholders, wholly owned subsidiaries in China of the groups of which such shareholders are a part and domestic shareholders;

(2) accepting deposits from dealers for loans for the procurement of motor vehicles and deposits from lessees for motor vehicle leases;

(3) upon approval, issuing financial bonds;

(4) engaging in interbank lending;

(5) borrowing from financial institutions;

(6) extending loans for the purchase of motor vehicles;

(7) extending to dealers motor vehicle procurement loans and operating equipment loans, including loans for the construction of show rooms, loans for parts and components and loans for repair equipment;

(8) providing motor vehicle lease financing services (with the exception of after-sale lease back services);

(9) selling or repurchasing motor vehicle loan receivables and motor vehicle lease financing receivables to/from financial institutions;

(10) handling the sale and disposal of the residual value of leased motor vehicles;

(11) engaging in consulting and agency business relating to financing activities for the purchase of motor vehicles;

(12) upon approval, investing in the equity of financial institutions connected with auto finance business; and

(13) other business as approved by the CBRC.

Article 20: When extending motor vehicle loans, an auto finance company shall comply with relevant provisions such as the Measures for the Administration of Motor Vehicle Loans.

Article 21: If the business of an auto finance company involves foreign exchange transactions, it shall comply with state provisions on foreign exchange control.

PART FOUR: RISK CONTROL AND OVERSIGHT

Article 22: An auto finance company shall establish and enhance corporate governance and internal control systems and establish a comprehensive and effective risk management system in accordance with the requirements of the CBRC's guidelines for the internal controls of, and the guidelines for risk management by, banking financial institutions.

Article 23: An auto finance company shall comply with the following regulatory requirements:

(1) having a capital adequacy ratio of not less than 8% and a core capital adequacy ratio of not less than 4%;

(2) having a credit balance to a single borrower not exceeding 15% of its net capital;

(3) having a credit balance to a single group customer not exceeding 50% of its net capital;

(4) having a credit balance to a single shareholder and its affiliated parties not exceeding such shareholder's capital contribution to the auto finance company; and

(5) having a percentage of self-used fixed assets not exceeding 40% of its net capital.

The CBRC may appropriately revise the foregoing indicators in line with regulatory requirements.

Article 24: An auto finance company shall implement the system of dividing its credit risk assets into five grades in accordance with relevant provisions, establish a prudential asset impairment provision system and fully and timely make provisions for asset impairment. If it fails to fully make provision for such asset impairment, it may not distribute profits.

Article 25: An auto finance company shall prepare in accordance with provisions and submit to the CBRC balance sheets, profit and loss statements and other statements as required by the CBRC.

Article 26: An auto finance company shall establish a system for regular external audits and, within four months after the end of each financial year, submit its annual audit report signed and confirmed by its legal representative to the CBRC's agency of the place where it is registered.

Article 27: The CBRC or its agency may, as required, designate an accounting firm to carry out an audit of an auto finance company's business position, financial position, risk position, internal control systems and the implementation thereof, etc. The CBRC or its agency may require an auto finance company to replace an accounting firm whose professional skills or independence fails to satisfy regulatory requirements.

Article 28: If an auto finance company has a need to outsource business, it shall formulate policies and management rules and regulations for such outsourcing, including the decision procedure for such outsourcing, the assessment and management of the contractors, measures for controlling the confidentiality and security of business information, contingency plans, etc. Before executing a business outsourcing agreement, an auto finance company shall report the principal risks under the business outsourcing agreement and the corresponding risk avoidance measures, etc., to the CBRC agency of the place where it is registered.

Article 29: If an auto finance company violates these Measures, the CBRC will order it to rectify the matter within a specified period of time. If it fails to rectify the matter within the specified period of time, or if its acts seriously jeopardize the stable operation of the company or harm the lawful rights and interests of its customers, the CBRC may, depending on the circumstances and in accordance with laws and regulations such as the PRC Banking Regulation Law, take regulatory measures such as ordering it to suspend operations and restricting the rights of its shareholders.

Article 30: If an auto finance company is facing or could potentially face a credit crisis that would materially harm the lawful rights and interests of customers, the CBRC will take over its management or bring about its restructuring. If an auto finance company is operating in violation of the law, is operated or managed incompetently, etc., and failing to close it down would seriously jeopardize the financial order and/or harm the public interest, the CBRC will close it down.

Article 31: Auto finance companies may establish industry self-regulation organizations to carry out self-regulation and administration. When carrying out its activities, a self-regulatory organization shall be subject to the guidance and monitoring of the CBRC.

PART FIVE: SUPPLEMENTARY PROVISIONS

Article 32: For the purposes of Article 2 hereof, the term “China” means mainland China, excluding Hong Kong, Macao and Taiwan. The term “sellers” means dealers that engage solely in the sale of motor vehicles, and excludes motor vehicle manufacturers and other types of motor vehicle sellers.

Article 33: For the purposes of Article 6 hereof, the term “principal investor” means the investor that makes the largest capital contribution and such capital contribution accounts for not less than 30% of the entire share capital of the proposed auto finance company.

Article 34: For the purposes of Article 19 hereof, the term “motor vehicle lease financing” means a business activity wherein an auto finance company takes a motor vehicle as the subject matter of a lease and, based on the selection or approval of the motor vehicle and supplier by the lessee and in accordance with the contract, leases the motor vehicle obtained from the supplier to the lessee for its use and possession, and for which the auto finance company charges the lessee a leasing charge.

Article 35: For the purposes of Article 19 hereof, the term “after-sale lease back” means a lease financing method wherein the lessee and the supplier are the same party. Namely, it is a lease financing method wherein the lessee sells a motor vehicle owned by it to the lessor and executes a lease financing contract with the lessor under which it leases back the motor vehicle from the lessor.

Article 36: For the purposes of Article 23 hereof, the term “affiliated party” means an affiliated party as defined in Enterprise Accounting Guidelines, No.36: Disclosure of Affiliated Parties.

Article 37: The calculation of the regulatory indicators in Article 23 hereof shall comply with the relevant provisions of the CBRC's offsite regulatory statement indicator system.

Article 38: For the purposes of these Measures, the term “motor vehicle” means a road motor vehicle (excluding motorcycles) as defined in the Development Policy for the Motor Vehicle Industry of China. Financial services provided by auto finance companies for non-road motor vehicles such as bulldozers, excavators, mixers, pumping vehicles, etc., may, mutatis mutandis, be handled in accordance with these Measures.

Article 39: The CBRC is in charge of interpreting these Measures.

Article 40: These Measures shall be effective as of the date of promulgation. The existingMeasures for the Administration of Auto Finance Companies (Order of the CBRC No.4 of 2003) and the Implementing Rules for the Measures for the Administration of Auto Finance Companies (Yin Jian Fa [2003] No.23) shall be repealed simultaneously.