Her eyes scanned the vehicles at the largest open-air car market in China, then settled on a fire-engine-red, Chinese-built Volkswagen Passat sedan. All that stood between her and driving it away was 239,000 renminbi -- nearly $29,000. For 25-year-old Mo Ting, it was clearly a stretch. She is a college English teacher. Her husband is a journalist. Together, they bring home about $900 a month -- nice money in this country where hundreds of millions of people still subsist on less than that in a whole year, but hardly the sort of figure that conjures up visions of leather-upholstered bucket seats.

Still, Mo and her husband were eager for the freedom to come and go as they please, and undaunted by Beijing's legendary traffic woes. "To have a car is much better than not," she said. "I'd use it just like a bicycle, except it has two more wheels." They had run the numbers. If they put aside their other dream, homeownership, they could just make it. That is, if they employed a means taken for granted in most of the developed world, but just now catching on here: They would get a car loan from a bank.

As China's auto market booms -- it's the world's fastest-growing, up 55 percent in the first 11 months of this year -- foreign and domestic manufacturers are counting on new forms of financing to continue to expand the universe of buyers. Banks are obliging by aggressively marketing car loans to support an industry the government sees as crucial to China's transformation from an agricultural country into an industrial powerhouse.

"The auto industry is the pillar industry in China," said Lu Juntao, an official in the personal banking department of the government-controlled Agricultural Bank of China, which, with 34 percent market share, is the largest source of the nation's car loans. "The development of the industry can stir up the development of other industries. In other countries, governments encourage their auto industries for the same reason." For the banks, auto loans, along with home mortgages, are seen as a key means of improving balance sheets laden with bad debts to state-owned companies -- a way to shift their cash to a crop of increasingly high-earning Chinese consumers.

But as car loans become more popular, totaling $6 billion in the first nine months of 2002 by official estimates, signs are emerging that a credit bubble may be forming. The banks are lending to nearly all comers on easy terms, without much assurance that their customers can repay them. And many consumers, now getting their first taste of credit in a traditionally risk-averse society, are taking on more than they can handle.

The banks lending the money, along with the insurance companies that often cover the loans, remain remarkably ignorant about their customers' finances. Credit checks are rudimentary and perfunctory, bank officials acknowledge. Other than a new pilot project recently set up in Shanghai, there are no credit bureaus in China.

"We really can't say the credit system here is good," said Jia Xinguang, an analyst with China National Automotive Industry Consulting and Development Corp., a government-affiliated group in Beijing. "In fact, there is no credit system."

Many households with monthly incomes of $400 to $500 are taking on debts that obligate them to hand over half of that toward paying off their vehicles. In the United States, lenders typically refuse credit once borrowers' payment obligations reach 40 percent of their income.

A 27-year-old Shanghai civil servant named Li earns less than $400 a month, but that did not stop him from buying a domestically produced Citroen compact car last year, according to a recent story in the Shanghai Morning Post. He exhausted his savings for the down payment and took on obligations to hand over about $360 a month -- 90 percent of his salary -- for three years. After the first month he never made another payment, according to the article. In August the bank sued and forced him to sell the car.

"The banks have really gotten the green light to lend to consumers, but if it's not structured right, they could end up losing as much money on cars as they did lending to [state-owned companies]," said Nicholas R. Lardy, an expert on Chinese banks at the Brookings Institution in Washington.

Only about 12 percent of car purchases this year have been financed through loans, according to Automotive Resources Asia Ltd., an independent consultancy. But that is up from essentially zero four years ago.

Some 30 percent of all car purchases will be financed by 2007 as more young people with good jobs but little savings and little aversion to debt enter the market for new cars, Automotive Resources Asia forecast. "Banks are still playing a very small role in China's car market today, but their potential is huge," said Yale Zhang, an analyst at the group. "We're seeing a taking off of private purchasing power."

Indeed, while many Chinese remain too poor to contemplate buying even a motorbike, incomes in the country's most prosperous cities have risen dramatically. The metropolitan areas of Shanghai, Beijing and southern Guangdong province, near Hong Kong, each are home to 20 million to 30 million people with annual incomes of about $3,000, according to a recent report in China Economic Quarterly. That is roughly the point at which consumers in other developing countries have typically become willing and able to buy cars.

Many families pool their savings and buy cars that they share. Meanwhile, prices for cars are falling fast as more production plants are erected. But the demand cannot sustain so many plants, most analysts say.

A decade ago, China's car industry was driven purely by sales to government departments, military units and government-owned ventures. Today, 40 percent of all cars in China are sold to individuals. During the first 11 months of this year, more than 1 million passenger cars were sold in China, according to government data.

Such numbers have attracted the global car giants. Later this month, General Motors plans to sign a joint-venture agreement with a Chinese carmaker, Yantai Bodyshop, in Shandong province, marking its fourth such deal in China. Volkswagen recently announced that it is now selling more cars in this country than in the United States. Toyota, Nissan and Hyundai have each injected more than $1 billion in recent joint ventures in China.

In the United States, the car giants make more profit from the auto-finance business than from making and selling cars. Naturally, the foreigners are eyeing the car-loan business here as well. GM's financing arm, General Motors Acceptance Corp., has already applied to China's central bank for permission to begin making car loans. So have Ford and Volkswagen.

Their bids to break in amount to an early test of China's obligations under the terms of its entry to the World Trade Organization last year. Although China promised to allow foreign companies into the market, it has been slow in drafting the rules necessary to follow through. In part, this reflects the complexity of the task: Some Chinese provinces lack the legal concept of a lien, making for uncertainty about what happens and who owns the car when loans go bad. Some foreign governments and trade groups see a less benevolent explanation: The long wait for the rules illustrates how China will continue to wield regulations as a way to protect domestic companies -- in this case, its banks -- from an anticipated onslaught of foreign competition.

Recently, there has been movement. China released a draft of the needed rules in October. Last week, Long Yongtu, a vice minister in the Ministry of Foreign Trade and Economic Co-operation, was quoted in state press accounts as saying that the regulations would be in place "early next year."

As China has continued to open itself to the outside world, reformers in Beijing have wielded the threat of foreign competition as a tool to force domestic companies to improve their practices. So it is with banking. Some hope that with the goliaths of auto finance on their doorstep, China's largest banks will motivated to adopt more modern lending practices.

The trouble is that China's banks face conflicting pressures. On the one hand, they are supposed to clean up their balance sheets by making lending decisions through dispassionate calculations of risk and reward. On the other, they are supposed to act like the government banks most of them still are, directing credit at favored industries. Officials at China's banks acknowledge that they feel palpable pressure to help fuel the rise of the China's auto industry, which is seen as a way to seed a whole complex of other related business, such as rubber, chemicals and tourism.

The Agricultural Bank of China, for example, promotes its car-loan statistics as proud achievements. It began making such loans in 1998 and dramatically expanded operations in 2000. By the end of September, it had issued more than $3 billion worth. Although roughly one-fourth of the loans in China's banking system are bad, according to the government, bank officials say the rate of troubled car loans is less than 1 percent.

Still, bank officials acknowledge that it is far too early for such data to be meaningful, because the vast majority of loans have been issued in the past two years. Meanwhile, the banks continue to liberally hand out loans. At the Agricultural Bank, if customers make at least $180 per month, have a stable address and buy an insurance policy, they generally satisfy the criteria.

The chief of the consumer credit division at the Agricultural Bank, Cui Yiping, put it in simpler terms during a recent interview in Beijing.

"Basically," she said, "we'll lend to anyone who wants to borrow."

Special correspondent Wang Ting in Shanghai contributed to this report.

A man washes his Volkswagen in Beijing. Volkswagen said this year that its car sales in China surpassed its U.S. sales. Women check out a Volkswagen Bora last week in Shanghai. As production plants multiply in China, car prices fall.