(Adds details, comments from other car companies, new rules)
By Ben Blanchard
SHANGHAI, Nov 13 (Reuters) - U.S. auto giant General Motors Corp has become the first overseas car maker to apply to offer auto financing in China, hoping to rev sales higher in the world's fastest-growing major car market.
GM will team up with an arm of its long-standing Chinese partner, Shanghai Automotive Industry Corp (SAIC), to offer the loans, which executives have said could boost already booming sales by another 20 percent.
GM's General Motors Acceptance Corp (GMAC) and SAIC's Shanghai Automotive Group Finance Co Ltd plan to set up the new joint venture in Shanghai to support the sale of vehicles from the flagship Shanghai GM plant, the company said.
GM submitted the application on Wednesday night after the government unveiled more detailed rules, the company said.
"Globally, auto manufacturers sell about 70 percent of their production through auto finance deals while in China it is a meagre 15 to 20 percent," GMAC's executive vice-president of international operations, Richard Clout, said in a statement.
"We expect auto financing business will grow 60 to 80 percent in the coming years."
Sales from GM's four ventures in China soared almost 38 percent year on year in the first nine months to 267,395 units, already overtaking 2002's total of 264,101.
Other foreign automakers in China, including market leader Volkswagen AG and Ford Motor Co , have yet to announce their auto financing plans.
"We have to look at the details before there can be any movement," said Susan Zhu at Ford's Beijing office.
The detailed rules, issued by the China Banking Regulatory Commission, demand auto financing companies have capital adequacy ratios of 10 percent, though many of China's banks do not even meet ratios of eight percent.
Total guaranteed loans must also not exceed 200 percent of the financing company's registered capital, nor can they offer preferential treatment to related parties.
Interest rates can also be up to 10 percent less or 30 percent more than the bass rate determined by the central bank, the rules say, the same for commercial banks' loan operations.
China finally issued the rules allowing non-bank institutions to set up car financing in October, fulfilling WTO pledges more than a year late but ensuring a longer-term fillip for an already red-hot sedan market.
China's car sector may be charging ahead, but most vehicles are paid for in cash.
Lenders hope to accelerate the nascent consumer finance trend but could find it hard in the short run due to low incomes, lack of credit ratings and a cultural aversion to debt.
The rules ensure only the biggest can play, requiring at least four billion yuan ($483.2 million) in assets, though this was relaxed from earlier guidelines stipulating minimum assets of eight billion yuan.
Auto financial services could provide a leg up for a market that KPMG says will suffer 90 percent overcapacity by 2005. ($1=8.277 Yuan)