By Tang Zhengyu and Chen Ling, Sidley Austin Brown & Wood, Shanghai

In recent years, the Chinese automobile market has experienced phenomenal growth. According to the China Association of Automobile Manufacturers, major automakers realized aggregate sales of Rmb338.53 billion in 2002.¹ In the first half of 2003, in spite of the SARS epidemic, automobile sales reached 2.8 million, an increase of 30.7% from 2002.² Automobile manufacturing might exceed four million vehicles by the end of 2003, which will make China the fourth largest automaker in the world.³ Currently, there are eight million families in China that can afford automobiles; in five years this number will reach 42 million.⁴

At the same time, the automotive finance market has been developing. In 2002, the total balance in auto loans reached Rmb115 billion.⁵ As of the end of July 2003, the four major Chinese banks boasted a total auto loan balance of Rmb140.9 billion.⁶ Although these numbers have increased more than 200 times since 1998, the Chinese auto finance market has remained a highly exclusive one due to protectionism and a lack of legislation. Globally, 70% of new car sales are realized through auto finance, while in China this figure is only 10% to 15%.⁷ In the United States auto finance companies (AFCs) control over 60% of the automotive finance market. In South Korea, the market share of AFCs is even higher.⁸ In China, however, because prior to the Procedures there was no legislation governing AFCs, Chinese banks have dominated the auto finance market.