Incorporation of Auto Financing Companies in China

The newly revised regulations on auto financing – the Administration Methods on Auto Financing Corporations (Auto Financing Administration Methods), made by China Banking Regulatory Commission (CBRC), has come into effect on January 24, 2008. The purpose of this legal revision is to strengthen the legal control of financial risks to be involved in the business of auto financing. The requirements for establishing such an auto financing corporation is a good example in this respect. Details are as follows:

1. Requirements for Capital Contributor/Investor
The capital contributor for an auto financing corporation should be an enterprise legal person within or outside of China, and the main capital contributor is required to be either an enterprise manufacturing or selling complete automobiles or a non-banking financial institution (Art. 6 of Auto Financing Administration Methods). When such a capital contributor is a non-financial institution, the following conditions should be fulfilled:
   (i) 8,000 million Yuan RMB or equivalent in free convertible currency as minimum amount of total assets in recent one year and 5,000 million Yuan RMB or equivalent in free convertible currency as minimum amount of annual business revenue;
   (ii) the amount of net assets no less than 30% of the total assets at the end of recent one year;
   (iii) good business record plus profit-making in two consecutive fiscal years;
   (iv) true legitimate source of capital that is not from bank loan or other third parties;
   (v) compliance with legal rules and no grave violation of legal rules within recent two years;
   (vi) undertaking that the share of auto financing corporation will not be transferred within three years, which is to be incorporated in the articles of association, and so on (Art. 8 of Auto Financing Administration Methods). The aforesaid requirements are also applicable to a non-banking financial institution as the capital contributor, plus its registered capital should be no less than 300 million Yuan RMB or equivalent in free convertible currency (Art. 9 of Auto Financing Administration Methods).      

2. Minimum registered capital
The minimum registered capital of the auto financing corporation should be 500 million Yuan RMB or equivalent in free convertible currency, and the registered capital should be the capital actually contributed in one time (Art. 10 of Auto Financing Administration Methods).

3. Qualified Professionals
To establish the auto financing corporation, there should be qualified directors, senior officers and the business personnel who are familiar with the business of auto financing (Art. 5 of Auto Financing Administration Methods), and there should be at least one capital contributor who possesses more than five years of rich experience in the business management and risk control of auto financing, and if the capital contributor lacks the aforesaid qualifications, the qualified professional management team for auto financing should be introduced to the auto financing corporation. Besides, the qualifications as director or senior officer of the auto financing corporation should be approved by CBRC (Art. 13 of Auto Financing Administration Methods).
      
4. Sound Management Systems
The sound management systems for corporate governance, internal control, business operation, risk control and the like are required for the auto financing corporation (Art. 5 of Auto Financing Administration Methods).