Laws of the People's Republic of China

China Banking Regulatory Commission

Notice of China Banking Regulatory Commission on Printing and Issuing Detailed Rules for the Implementation of the Measures for the Administration of Auto Financing Companies

Yin Jian Fa [2003] No. 23

Detailed Rules for the Implementation of the Measures for the Administration of Auto Financing Companies adopted at 8th president meeting of China Banking Regulatory Commission on November 3rd, 2003 are hereby printed and issued, please carry out graveness.

China Banking Regulatory Commission

November 12th, 2003

Detailed Rules for the Implementation of the Measures for the Administration of Auto Financing Companies

Chapter I General Provisions

Article 1

The present Rules are formulated in accordance with the Measures for the Administration of Auto Financing Companies (hereinafter referred to as "Measures") and other relevant administrative regulations.

Article 2

The China Banking Regulatory Commission (hereinafter referred to as "CBRC") and its agencies shall make supervision over and administration of the auto financing companies according to the Measures and the present Rules.

Chapter II Establishment

Article 3

The application for establishing an auto financing company shall include the application for preparing the establishment and the application for starting the operation.

The banking regulatory bureau (CBRC's dispatched agency at the provincial level) at the place where an auto financing company is to be established shall be the examining and verifying authority for the application for establishing such auto financing company. CBRC shall be the examining and approving authority for applications for the establishments of all auto financing companies.

Article 4

The banking regulatory bureau shall implement a system of signing the receipt of the application documents for preparing the establishment and for starting the operation of an auto financing company.

Article 5

The applicant meeting the requirements of Article 5 of the Measures shall submit to the banking regulatory bureau an application form for preparing the establishment of an auto financing company and the materials required in Article 9 of the Measures.

Article 6

The banking regulatory bureau shall make examination on whether all the required documents have been submitted within five working days after signing the receipt of the application documents for preparing the establishment of an auto financing company. In case the application documents submitted are not complete or not in the specified forms, the banking regulatory bureau shall inform the applicant all by one written notice, and require the applicant to further submit the materials that need to be added. Where the application documents are complete and all in specified forms, the banking regulatory bureau shall accept and handle the application and give the applicant a written notice concerning that.

In case the banking regulatory bureau proclaims no objections within five working days, the application shall be regarded as accepted automatically.

Article 7

The banking regulatory bureau shall examine and verify the application documents for preparing the establishment of an auto financing company, give its opinion on whether or not to approve the application and submit such opinions to CBRC.

CBRC shall complete the examination and verification within 20 days after accepting the application documents.

CBRC shall be responsible for the examination and approval of the application for preparing the establishment, and shall make a decision in writing on whether or not to approve the application within six months after the banking regulatory bureau's acceptance of the application for preparing the establishment.

Article 8

In the event of disapproval, CBRC shall give the applicant a written notice stating the ground for such disapproval. The applicant may not make further application for the same purpose within six months from the date on which such disapproval is given.

Article 9

Any applicant having obtained the permit for preparing the establishment wishes to extend the period of preparations shall submit to the banking regulatory bureau an application form for extension and a report on application for extension, explaining the reasons for the extension. After examined and verified by the banking regulatory bureau, the application for extension shall be submitted to CBRC for verification and approval.

Such extension shall be limited to one time for each case and the period of extension shall not exceed three months.

Article 10

The applicant shall, after the preparations for establishment have been completed, submit to the banking regulatory bureau an application form for starting the operation and the materials required in Article 12 of the Measures.

Article 11

The banking regulatory bureau shall be responsible for the acceptance, and examination and verification of the application documents for starting the operation. The procedures for such acceptance, examination and verification shall be the same as those specified in Articles 6 and 7 of these detailed Rules.

CBRC shall make a decision in written form on whether or not to approve the application within three months after the banking regulatory bureau's acceptance of the application for starting the operation.

Article 12

CBRC shall be responsible for the verification and approval of the applications for starting the operation and the business scopes of auto financing companies. In the event of a solely foreign-owned auto financing company or a Chinese-foreign joint auto financing company, the Financial License shall be issued by CBRC. In the event of a Chinese-investment auto financing company, the Financial License shall be issued by the banking regulatory bureau.

The Financial Licenses of auto financing companies shall be governed by the Measures for the Control of Financial Licenses and other relevant provisions.

Article 13

CBRC is authorized by the Ministry of Commerce of the People's Republic of China to issue the Approval Certificate of the People's Republic of China for an Enterprise with Foreign Investment to the solely foreign-owned and Chinese-foreign joint auto financing companies who have been approved to start operation. After receiving the approval document for starting the operation, the solely foreign-owned or Chinese-foreign joint auto financing company shall go through the relevant formalities with CBRC and make enterprise registration by the approval document issued by CBRC, the Financial License and the aforesaid approval certificate. CBRC shall, on the same day as issuing the approval certificate, submit to the Ministry of Commerce the approval certificate stub.

Article 14

The articles of association of an auto financing company shall at least cover the company's name, place of business, type of ownership, registered capital, scope of business, form of association, operation and management, and termination and liquidation.

Article 15

With regard to each auto financing company, there must be at least 60% persons of its personnel who have the experience in financial field or are graduates of college or secondary specialized school majoring in finance. The application documents for starting the operation of an auto financing company shall cover the information on the percentage of persons who have the experience in financial field or are graduates of college or secondary specialized school majoring in finance.

Article 16

All the application documents either for preparing the establishment or for starting the operation shall be submitted in triplicate and in Chinese.

Chapter III Qualifications for the Senior Administrative Personnel

Article 17

The term "senior administrative personnel of an auto financing company" means the legal representative of the company and the persons who have decision-making power with regard to the operation and management of the company or who play a major role in risk control of the company, that is, the directors, supervisors, general manager, deputy general manager, chief financial officer, manager of the department of internal audit or inspection, and the administrative persons who are in other titles but have the same functions and duties as mentioned above.

Article 18

The senior administrative personnel of an auto financing company must meet the following basic requirements:

(1)

Being well acquainted with and complying with the relevant economic and financial laws and regulations of the state; and

(2)

Having the professional knowledge, work experience and organizational and administrative abilities necessary for his post.

Article 19

Anyone who is under any of the following circumstances may not be the senior administrative personnel of any auto financing company:

(1)

Having a record of crime or having been severely punished for his illegal act;

(2)

Having caused grievous losses to the financial institution or other enterprise or company where he worked due to his serous mistakes in his work in the past five years;

(3)

Bearing the major responsibility or the direct leader's responsibility for any major improper act, revocation of the financial license or business license or bankruptcy of the financial institution or other enterprise or company where he worked, and such event occurred in the past five years; or

(4)

Other circumstances prescribed in laws and regulations under which one person may not be the senior administrative personnel of a financial institution.

Article 20

The qualifications and appointments of the chairmen of board of directors, vice chairmen of board of directors, executive directors, directors, general managers, deputy general managers and chief financial officers of auto financing companies shall be subject to the examination and approval of CBRC and its agency. And the qualifications and appointments of other senior administrative personnel of auto financing companies shall be subject to submission to CBRC and its agency for archival purposes.

Article 21

The senior administrative personnel of auto financing companies to whom the examination and approval system applies shall meet the following conditions:

(1)

A person to be the chairman of board of directors, executive director or general manager must be a graduate of college or above, and have experience in financial field of at least five years or in the management of auto production or sales of at least ten years. In case he is not a graduate of college or above, he shall have experience in financial field of at least eight years or in the management of auto production or sales of at least 15 years;

(2)

A person to be the vice chairman of board of directors or deputy general manager must be a graduate of college or above, and have experience in financial field of at least three years or in the management of auto production or sales of at least six years. In case he is not a graduate of college or above, he shall have experience in financial field of at least six years or in the management of auto production or sales of at least 11 years;

(3)

A person to be the chief financial officer must be a graduate of college or above, and have experience of financial, accounting or auditing work of at least six years. In case he is not a graduate of college or above, he shall have experience of financial, accounting or auditing work of at least 14 years; and

(4)

A person to be a director must be a graduate of junior college or above, and have experience in enterprise operation and management of at least six years. In case he is not a graduate of junior college or above, he shall have experience in enterprise operation and management of at least ten years.

Article 22

With the appointment of senior administrative personnel to whom the examination and approval system is applied, the auto financing company shall submit the following application documents (in triplicate) to the local agency of CBRC:

(1)

The qualifications form for examination and approval;

(2)

The application for verifying the qualifications of the person to be appointed;

(3)

The comprehensive appraisal on the conduct, professional ability, administrative ability and achievements of the person to be appointed by the board of directors and board of supervisors of the company to make the appointment and by the present employer of the person to be appointed;

(4)

A copy of the ID card of the person to be appointed;

(5)

The copies of the academic credentials and the certificate of professional skill, as recognized by the state, of the person to be appointed; and

(6)

Other materials as may be required by CBRC or its agency.

Article 23

In the event of submission of information about senior administrative personnel of an auto financing company for CBRC's and its agency's examination and approval, CBRC and its agency shall, within 90 days from the receipt of all the required application documents, give a reply on whether or not to approve. In the event of disapproval, a written notice shall be given to the applicant explaining the reasons for this disapproval.

Article 24

CBRC and its agency may hold examinations or tests for or talks with a person who is to be appointed to a senior administrative post and whose qualifications and appointment are subject to the examination and approval of CBRC and its agency.

Article 25

With regard to the appointment of senior administrative personnel to whom the system of submission for archival purposes is applied, the auto financing company shall submit the following materials (in triplicate) to the local agency of CBRC:

(1)

The qualifications form for archival purposes;

(2)

The copy of the ID card of the person to be appointed;

(3)

The copies of the academic credentials and the certificate of professional skill, as recognized by the state, of the person to be appointed; and

(4)

Other materials as may be required by CBRC or its agency.

Article 26

In the event of submission of information about senior administrative personnel of an auto financing company for archival purposes, in case the local agency of CBRC does not make any objection in written form within 30 days after the receipt of all the required information, it shall be regarded as recognized.

Article 27

Without the approval of CBRC and its agency, the senior administrative personnel of an auto financing company, such as the chairman of board of directors, vice chairman of board of directors, executive director, general manager, deputy general manager, chief financial officer or manager of the department of internal audit or inspection, may not concurrently hold any post in any Party or government organization or any post of senior management in any other company.

Article 28

The chairman of board of directors of an auto financing company may not concurrently hold the post of general manager. The director of an auto financing company may not concurrently hold any post of senior management in any other company that is in a competitive relation with the auto financing company.

Article 29

Where the chairman of board of directors or the general manager of an auto financing company fails to perform his duties for one month or more in succession for any reason, other senior administrative personnel shall be appointed as the acting chairman of board of directors or general manager, provided that such appointment shall be subject to the submission to the local agency of CBRC for archival purposes in advance. Where the chairman of board of directors or the general manager fails to perform his duties for three months or more in succession, he shall be replaced.

Article 30

When senior administrative personnel of an auto financing company is to leave his post, the company shall engage an external auditor as approved by CBRC and its agency to make an audit on post-leaving.

Article 31

An audit report on post-leaving shall at least cover the following:

(1)

The situation of the business under the person's charge;

(2)

Whether the business under the person's charge was conducted in accordance with laws and regulations;

(3)

The situation of the internal control and risk management with regard to the business under the person's charge;

(4)

The great economic or criminal cases occurred in the person's scope of official duty and the person's responsibility for such cases; and

(5)

The conclusion of the audit.

Article 32

CBRC and its agencies shall establish and keep the archives of senior administrative personnel of auto financing companies. Such archives shall at least cover the followings:

(1)

The application documents for appointments;

(2)

The documents and materials examined and verified by CBRC and its agencies;

(3)

The documents of CBRC and its agencies on approving the appointments;

(4)

The decisions made by CBRC and its agencies on sanctions on the senior administrative personnel or the documents of CBRC and its agencies on disqualifying the senior administrative personnel;

(5)

The decisions made by the auto financing companies on sanctions on the senior administrative personnel;

(6)

The audit reports on post-leaving; and

(7)

Other important materials.

Article 33

Where any of senior administrative personnel bears personal responsibility or bear the direct leader's responsibility for any of the following circumstances, CBRC and its agency shall, according to the circumstances and the consequences, disqualify the person, for a fixed period or for his whole life, from being such senior administrative personnel:

(1)

The person is subject to any criminal responsibility;

(2)

The person refuses, interferes with, obstructs or seriously affects the legal supervision and administration by CBRC or its agency on the auto financing company;

(3)

The poor internal control system or ineffective management has caused heavy losses of assets or resulted in any great financial crime;

(4)

The company has conducted extremely improper operations. It has been in poor management and administration for a long period of time and suffered heavy losses or it has been taken over, dissolved, enforced to merge or declared bankrupt;

(5)

In the event of any great financial crime, the company fails to report the case without delay, fails to take proper measures, or fails to cooperate with the competent authorities in the latter's investigation or handling of the case, or interferes with or obstructs the investigation and handling of the case;

(6)

The senior administrative personnel is found, after the appointment, to have committed any illegal or improper act or have other circumstances that preclude his being a senior administrative personnel; and

(7)

Other circumstances as specified by CBRC or its agency.

Article 34

CBRC and its agencies may circulate a notice on the disqualification of senior administrative personnel of an auto financing company.

Chapter IV Risk Control, Supervision and Management

Article 35

Any auto financing company shall set up a sound risk management system aiming at risk control, which includes the following:

(1)

Setting up an organizational structure for good management of the company, with the duties and responsibilities reasonably and clearly divided and the accounting relations clearly specified, and setting up the scientific and highly efficient decision-making and encouraging and restricting mechanisms; and

(2)

Establishing and improving the internal control system by referring to the Guidance for Internal Control of Commercial Banks and under the principles of generality, discretion, effectiveness and independence, and submitting that to the local agency of CBRC for archival purposes.

Article 36

Any auto financing company shall establish a board of directors, other than in the event of a solely foreign-owned auto financing company which has only a single director, and which shall engage an external independent director.

Article 37

Any auto financing company shall have its assets divided into five classes and, by referring to the Guiding Principles for Classified Loan Risks, formulate rules for operating different classes of asset risks and implement them after submitting them to the local agency of CBRC for archival purposes. It shall, in accordance with the Guidance for the Provision of Reverses for Loan Losses, set up a cautious system of reserves for loan losses, and make timely and adequate provision of reserves for losses of assets.

Article 38

The formula for the calculation of the capital adequacy ratio of an auto financing company shall be: capital/risk-weighed assets.

Article 39

The capital of an auto financing company consists of the core capital and the subordinated capital. The core capital consists of paid-up capital, capital reserves, surplus reserves and undivided profits. The subordinated capital consists of revalued reserves and general reserves.

The core capital of an auto financing company shall be not less than 50% of all its capital.

Article 40

The calculation of the risk-weighed assets and different asset risk weights of an auto financing company are as follows:

Risk-weighed assets=claims against commercial banks¡Á20%+claims guaranteed by a commercial bank¡Á20%+claims with a guarantee of other forms¡Á50%+assets in other forms¡Á100%+balance of guarantee business¡Á100%

A guarantee of other forms means a guarantee other than those provided by a commercial bank; assets in other forms do not include cash.

At the calculation of the risk assets of each loan, the special-purpose reserve shall be first deducted from the book value of the loan, and the devaluation reserves for other assets shall also be deducted from the book value of the relevant asset account.

Article 41

The ratio between the balance of credit provided by an auto financing company to a single borrower and the company's registered capital shall not exceed 15%.

The credit balance comprises stated accounts and unstated accounts.

Article 42

The ratio between the balance of credits provided by an auto financing company to the biggest ten clients shall not exceed 50% of its registered capital.

Article 43

No auto financing company may give any unsecured loan to any of its affiliated persons, nor may it extend any credit to any of its affiliated persons on terms more favorable than those offered to other borrowers with the same kind of credit.

Article 44

The balance of the credit extended by an auto financing company to any single director of the company and the affiliated persons of the director shall not exceed 100% of the investment by the director to the company.

Article 45

The credit balance under Articles 41, 42 and 44 of the present Rules refers to the balance after deducting the cash and money equivalent given in pledge by the borrower.

Article 46

The guarantee balance of an auto financing company shall not be more than 200% of its registered capital.

Article 47

The ratio between the fixed assets for its own use and the registered capital of an auto financing company shall not be more than 40%.

Article 48

The ratio between the current assets and current liabilities of an auto financing company shall be not lower than 100%.

The current assets cover cash, loans matured in a month, accounts receivable in a month and other assets that may be realized in a month, provided that the amounts that are anticipated as not receivable shall be deducted from the aforesaid assets. The current liabilities include deposits matured in a month, loans repayable in a month to financial institutions and other liabilities due in a month.

Article 49

The loans for auto exhibition halls shall only be used for the construction of places required for the exhibition of finished motors.

Article 50

The interest rate of loans obtained by an auto financing company from other financial institutions shall apply the banker's rates mutatis mutandis. The interest rate of auto loans granted by an auto financing company may fluctuate by ?0-30% based on the legal rate of interest as quoted by the People's Bank.

Article 51

All the auto financing companies shall, in accordance with the provisions made by BCRC and its agency concerning the relevant supervision and control, regularly submit to the local agency of CBRC their financial and accounting statements and reports on the implementation of supervision and control indexes signed by its legal representative, and other materials as may be required by CBRC and its agency.

The legal representative of an auto financing company is held finally responsible for the authenticity of the aforesaid materials.

Article 52

CBRC and its agencies shall, by on-the-spot inspection and off-the-spot supervision and control, conduct overall check and appraisement on each auto financing company's implementation of the risk management system in which the legal person's administrative structure and internal control system serve as the key elements, of the capital adequacy ratio and other risk control indexes and of the systems of classification of assets risks and asset loss reserves. CBRC and its agencies shall be entitled to order any auto financing company failing to meet the relevant requirements to make reform and consolidation, or suspend part or all of its business for reorganization.

CBRC and its agencies may designate an intermediary agency with proper credentials to make spot inspection on auto financing companies.

Chapter V Supplementary Provisions

Article 53

The term "auto financing business" means the business specified in Article 18 of the Measures.

Article 54

The term "the distributor" mentioned in Article 2 of the Measures means distributors who specially engage in the sales of motors and does not include auto manufacturers or other sellers of motors.

Article 55

The enterprise legal person mentioned in Article 5 (1) of the Measures does not include any bank either in or out of China.

Article 56

The term "the buyer and seller of motors in China" mentioned in Article 2 of the Measures mean the buyers and sellers of motors in China's mainland and do not include those in Hong Kong, Macao or Taiwan.

Article 57

In the present Rules, the term "affiliated person" includes affiliated legal persons and affiliated natural persons.

The affiliated legal person of an enterprise means:

(1)

A legal person who directly or indirectly controls the enterprise or who is, together with the enterprise, under the common control of any third person; or

(2)

An enterprise under the direct or indirect control of an affiliated natural person.

The term "affiliated natural person of an enterprise" means the senior administrative personnel of the enterprise and the close relatives thereof. The affiliated natural persons of an auto financing company include in addition the personnel engaging in the credit business and the close relatives thereof.

Article 58

The present Rules shall be implemented as of the promulgation. The responsibility to interpret the present Rules shall remain with CBRC.