**EXECUTION
      VERSION**


**ESCROW
      AGREEMENT**




**THIS
      ESCROW AGREEMENT** (this
“ Agreement ”)
      is
      entered into this 15th day of February, 2008, by and among Lehman Brothers
      Commercial Corporation Asia Limited, a Hong Kong company (“ LBCCA ”),
      YA
      Global Investments, L.P., a Cayman Islands limited partnership (“ YAGI ”
and,
      together with LBCCA, the “ Purchasers ”),
      China
      Automotive Systems, Inc., a Delaware corporation (the “ Company ”),
      and
      U.S. Bank National Association, a national banking association, as escrow agent
      hereunder (the “ Escrow
      Agent ”).
      Capitalized terms used herein and not otherwise defined shall have the meanings
      assigned to such terms in the Purchase Agreement (as defined
      below).




**RECITALS**




**WHEREAS,** the
      Purchasers and the Company have entered into that certain Securities Purchase
      Agreement, dated as of February 1, 2008 (the “ Purchase
      Agreement ”),
      pursuant to which the Purchasers agreed to purchase certain securities of the
      Company; and




**WHEREAS,** pursuant
      to the terms of the Purchase Agreement, an amount equal to $17,500,000 (the
      “ Deposit
      Amount ”)
      that
      would have otherwise been paid by the Purchasers to the Company in connection
      with the transactions contemplated by the Purchase Agreement is to be paid
      by
      the Purchasers to the Escrow Agent and held in escrow (the “ Escrow
      Account ”),
      pursuant to the Purchase Agreement.




**AGREEMENT**




**NOW,
      THEREFORE,** in
      consideration of the mutual agreements and covenants contained herein and other
      good and valuable consideration, the sufficiency of which are hereby
      acknowledged, the parties hereto agree as follows:




**1.**  **Receipt
      of Escrow.** By its
      signature below, the Escrow Agent acknowledges receipt of funds from the
      Purchasers in an amount equal to the Deposit Amount (together with the
      investment return thereon, the “Escrow Amount”).




**2.**  **Investment
      of Escrow.**




**(a)**  The
      Escrow Amount shall be invested by the Escrow Agent in First American Prime
      Obligation Fund - Class Y, or as otherwise directed by LBCCA and the
      Company.




**(b)**  All
      assets held in the Escrow Account shall be registered in the name of any
      nominees selected by the Escrow Agent under this Agreement. With respect to
      any
      funds received by the Escrow Agent for deposit into the Escrow Account or any
      direction received by the Escrow Agent with respect to investment of any funds
      in the Escrow Account after 10:00 a.m., Eastern Time, the Escrow Agent shall
      not
      be required to invest such funds or to effect such investment instruction until
      the next day upon which banks in New York City are open for business. The Escrow
      Agent shall be entitled to sell or redeem any such investment as necessary
      to
      make any distributions required under this Agreement and shall not be liable
      or
      responsible for any loss resulting from any such sale or
      redemption.









**3.**  **Release
      of Escrow.**




**(a)**  On
      or
      prior to April 30, 2008, the Purchasers and the Company shall deliver to the
      Escrow Agent, joint written instructions (“ Joint
      Written Instructions ”)
      setting forth instructions for the Escrow Agent to release all or a portion
      of
      the Escrow Amount in an amount set forth therein to the Purchasers ( *pro
      rata* in
      accordance with their respective Applicable Percentages (as defined below))
      or
      to the Company, as the case may be, as specified in such Joint Written
      Instructions. The “ Applicable
      Percentage ”
of
      each
      Purchaser is set forth opposite such Purchaser’s name on Annex A attached
      hereto.




**(b)**  The
      Escrow Agent shall release all or portion of the Escrow Amount as expressly
      directed by the Joint Written Instructions.




**(c)**  The
      Purchasers and the Company agree that they will act in good faith to execute
      the
      Joint Written Instructions in accordance with the terms of this Agreement and
      the Purchase Agreement.




**(d)**  Notwithstanding
      the foregoing, the Escrow Agent shall disburse the Escrow Amount (or any portion
      thereof) in accordance with a notice from either the Purchasers or the Company
      of a final, non-appealable order from a court of competent jurisdiction in
      the
      United States, along with a copy of such order, pursuant to which such court
      has
      determined whether and to what extent the Purchasers or the Company, as
      applicable, are entitled to the Escrow Amount (or any portion
      thereof).




**4.**  **Duties
      of the Escrow Agent.**




**(a)**  **Duties
      in General.**




**(i)**  The
      Escrow Agent undertakes to perform only such duties as are expressly set forth
      herein (and required by applicable law), which the parties agree are ministerial
      in nature, and no duties shall be implied. If in doubt as to its duties and
      responsibilities hereunder, the Escrow Agent may consult with counsel of its
      choice and shall be protected in any action taken or omitted in connection
      with
      the advice or opinion of such counsel.




**(ii)**  If
      the
      Escrow Agent becomes involved in litigation with respect to this Agreement
      for
      any reason, it is hereby authorized to deposit the Escrow Amount with the clerk
      of such court in which such litigation is pending, or to interplead all
      interested parties in any court of competent jurisdiction and to deposit with
      the clerk of such court the Escrow Amount. Upon the happening of either of
      the
      above, the Escrow Agent shall be fully relieved and discharged of any further
      duties hereunder.




**(iii)**  If,
      at
      any time, (i) there shall exist any dispute among the parties hereto with
      respect to the holding or disposition of any portion of the Escrow Amount or
      any
      other obligations of the Escrow Agent hereunder, (ii) the Escrow Agent is unable
      to determine, to the Escrow Agent’s sole satisfaction, the proper disposition of
      any portion of the Escrow Amount or the Escrow Agent’s proper actions with
      respect to its obligations hereunder, or (iii) the Purchasers and the Company
      have not within fifteen (15) business days of the furnishing by the Escrow
      Agent
      of a notice of resignation pursuant to Section 6, appointed a successor Escrow
      Agent to act hereunder, then the Escrow Agent may, in its sole discretion,
      take
      either or both of the following actions :




**(A)**  suspend
      the performance of any of its obligations under this Agreement until such
      dispute or uncertainty shall be resolved to the sole satisfaction of the Escrow
      Agent or until a successor Escrow Agent shall have been appointed (as the case
      may be); or




-2-




**(B)**  petition
      (by means of an interpleader action or any other appropriate method) any court
      of competent jurisdiction in any state or federal court located in the State
      of
      New York, for instructions with respect to such dispute or uncertainty, and
      to
      the extent required or permitted by law, pay into such court, for holding and
      disposition in accordance with the instructions of such court, the Escrow
      Amount, after deduction and payment to the Escrow Agent of all fees and expenses
      (including court costs and reasonable attorneys’ fees) payable to, actually
      incurred by, or reasonably expected to be incurred by the Escrow Agent in
      connection with the performance of its duties and the exercise of its rights
      hereunder.




The
      Escrow Agent shall have no liability to the Purchasers, the Company, their
      respective shareholders or members or any other person with respect to any
      such
      suspension of performance or disbursement into such court, including, without
      limitation, any liability that may arise, or be alleged to have arisen, out
      of
      or as a result of any delay in the disbursement of funds held in the Escrow
      Account or any delay in or with respect to any other action required or
      requested of the Escrow Agent.




**(b)**  **Exculpation.**




**(i)**  The
      Escrow Agent shall have no liability under and no duty to inquire as to the
      provisions of any agreement other than this Agreement (except as to the
      capitalized terms used herein and defined in the Purchase Agreement). The Escrow
      Agent shall not be liable for any action taken or omitted by it in good faith
      except to the extent that a court of competent jurisdiction determines that
      the
      Escrow Agent’s gross negligence or willful misconduct was the primary cause of
      any loss to the Purchasers or the Company. The Escrow Agent’s sole
      responsibility shall be for the safekeeping and disbursement of the Escrow
      Amount in accordance with the terms of this Agreement. The Escrow Agent may
      rely
      upon any notice, instruction, request or other instrument, not only as to its
      due execution, validity and effectiveness, but also as to the truth and accuracy
      of any information contained therein, which the Escrow Agent shall believe
      to be
      genuine and to have been signed or presented by the person or parties purporting
      to sign the same. In no event shall the Escrow Agent be liable for incidental,
      indirect, special, and consequential or punitive damages (including, without
      limitation, lost profits), even if the Escrow Agent has been advised of the
      likelihood of such loss or damage and regardless of the form of action. The
      Escrow Agent shall not be obligated to take any legal action or commence any
      proceeding in connection with the Escrow Account, any account in which the
      Escrow Amount is deposited, this Agreement or the Purchase Agreement, or to
      appear in, prosecute or defend any such legal action or proceeding. The Escrow
      Agent may consult legal counsel selected by it in the event of any dispute
      or
      question as to the construction of any of the provisions hereof or of any other
      agreement or of its duties hereunder, or relating to any dispute involving
      any
      party hereto, and shall incur no liability and shall be fully protected from
      any
      liability whatsoever in acting in accordance with a written opinion of such
      counsel. Each of the Purchasers (in accordance with their Applicable
      Percentages), on the one hand, and the Company, on the other hand, severally
      and
      not jointly, shall promptly pay, upon demand, one-half of the reasonable fees
      and expenses of any such legal counsel.




-3-




**(ii)**  The
      Escrow Agent is authorized, in its sole discretion, to comply with orders issued
      or process entered by any court of competent jurisdiction with respect to the
      Escrow Account. If any portion of the Escrow Amount is at any time attached,
      garnished or levied upon under any court order, or in case the payment,
      assignment, transfer, conveyance or delivery of any such property shall be
      stayed or enjoined by any court order, or in case any order, judgment or decree
      shall be made or entered by any court of competent jurisdiction affecting such
      property or any part thereof, then and in any such event, the Escrow Agent
      is
      authorized, in its sole discretion, to rely upon and comply with any such order,
      writ, judgment or decree; and if the Escrow Agent complies with any such order,
      writ, judgment or decree, it shall not be liable to any of the parties hereto
      or
      to any other person or entity by reason of such compliance even though such
      order, writ, judgment or decree may be subsequently reversed, modified,
      annulled, set aside or vacated.




**(c)**  **No
      Additional Duties.** The
      Escrow Agent shall have no duties except those that are expressly set forth
      herein, and it shall not be bound by any notice of a claim or demand hereunder,
      or any waiver, modification, amendment, termination or rescission of this
      Agreement, unless received by it in writing.




**(d)**  **Miscellaneous.** The
      Escrow Agent may execute any of its powers or responsibilities hereunder and
      exercise any rights hereunder either directly or by or through its agents or
      attorneys. The Escrow Agent shall not be responsible for and shall not be under
      a duty to examine or pass upon the validity, binding effect, execution or
      sufficiency of this Agreement or of any agreement amendatory or supplemental
      hereto.




**5.**  **Indemnification
      of the Escrow Agent.**




**(a)**  From
      and
      at all times after the date of this Agreement, each of the Purchasers (in
      accordance with their Applicable Percentages), on the one hand, and the Company,
      on the other hand, severally and not jointly, shall, to the fullest extent
      permitted by law, defend, indemnify and hold harmless the Escrow Agent and
      each
      director, officer, employee, attorney, agent and affiliate of the Escrow Agent
      (collectively, the “ Indemnified
      Parties ”)
      against one-half of any and all actions, claims (whether or not valid), losses,
      damages, liabilities, costs and expenses of any kind or nature whatsoever
      (including, without limitation, reasonable attorneys’ fees, costs and expenses)
      incurred by or asserted against any of the Indemnified Parties from and after
      the date hereof, whether direct, indirect or consequential, as a result of
      or
      arising from or in any way relating to any claim, demand, suit, action or
      proceeding (including any inquiry or investigation) by any person, including,
      without limitation, the Purchasers or the Company, whether threatened or
      initiated, asserting a claim for any legal or equitable remedy against any
      person under any statute or regulation, including, without limitation, any
      federal or state securities laws, or under any common law or equitable cause
      or
      otherwise, arising from or in connection with the negotiation, preparation,
      execution, performance or failure of performance of this Agreement or any
      transactions contemplated herein, whether or not any such Indemnified Party
      is a
      party to any such action, proceeding, suit or the target of any such inquiry
      or
      investigation; provided *,* however ,
      that no
      Indemnified Party shall have the right to be indemnified hereunder for any
      liability finally determined by a court of competent jurisdiction, subject
      to no
      further appeal, to have resulted primarily from the gross negligence or willful
      misconduct of such Indemnified Party. The Indemnified Parties (as a group)
      shall
      have the right to select and employ a single firm of counsel with respect to
      any
      action or claim brought or asserted against them, provided that such counsel
      is
      reasonably acceptable to the Purchasers and the Company, and one-half of the
      reasonable fees of such counsel shall be paid upon demand by each of the
      Purchasers (in accordance with their Applicable Percentages), on the one hand,
      and the Company, on the other hand, severally and not jointly. The obligations
      of the Purchasers and the Company under this Section 5 shall survive any
      termination of this Agreement and the resignation or removal of the Escrow
      Agent.




-4-




**(b)**  The
      parties agree that neither the payment by the Purchasers or the Company of
      any
      claim by the Escrow Agent for indemnification hereunder nor the disbursement
      of
      any amounts to the Escrow Agent from the Escrow in respect of a claim by the
      Escrow Agent for indemnification shall impair, limit, modify, or affect, as
      between the Purchasers or the Company, the respective rights and obligations
      of
      the Purchasers, on the one hand, and the Company, on the other hand, under
      the
      Purchase Agreement.




**6.**  **Resignation
      of the Escrow Agent.** The
      Escrow Agent, and any successor Escrow Agent, may resign at any time as Escrow
      Agent hereunder by giving at least fifteen (15) business days written notice
      to
      the parties. Upon such resignation and the appointment of a successor Escrow
      Agent, the resigning Escrow Agent shall be absolved from any duties as Escrow
      Agent hereunder. Upon their receipt of notice of resignation from the Escrow
      Agent, the Purchasers and the Company shall use their reasonable best efforts
      jointly to designate a successor Escrow Agent. If the parties do not agree
      upon
      a successor Escrow Agent within fifteen (15) business days after the receipt
      by
      the parties of the Escrow Agent’s resignation notice, the Escrow Agent may
      petition any court of competent jurisdiction for the appointment of a successor
      Escrow Agent or other appropriate relief (including, without limitation, an
      interpleader action) and any such resulting appointment shall be binding upon
      all parties hereto. By mutual agreement, the Purchasers and the Company, acting
      together, shall have the right at any time upon not less than ten (10) business
      days written notice to terminate their appointment of the Escrow Agent, or
      any
      successor Escrow Agent, as Escrow Agent hereunder. Notwithstanding anything
      to
      the contrary in the foregoing, the Escrow Agent or any successor Escrow Agent
      shall continue to act as the Escrow Agent until a successor is appointed and
      qualified to act as the Escrow Agent. The resigning Escrow Agent shall transmit
      all records pertaining to the Escrow Account and shall pay the Escrow Amount
      to
      the successor Escrow Agent, after making copies of such records as the resigning
      Escrow Agent deems advisable and after deduction and payment to the resigning
      Escrow Agent of all fees and expenses (including court costs and reasonable
      attorneys’ fees) payable to, actually incurred by, or reasonably expected to be
      incurred by the retiring Escrow Agent in connection with the performance of
      its
      duties and the exercise of its rights hereunder. After any resigning Escrow
      Agent’s resignation or removal, the provisions of this Agreement shall inure to
      its benefit and survive with respect to any actions taken or omitted to be
      taken
      by such resigning Escrow Agent while it was the Escrow Agent under this
      Agreement. Any corporation or association into which the Escrow Agent may be
      merged or converted or with which it may be consolidated, or any corporation
      or
      association to which all or substantially all of the escrow business of the
      Escrow Agent’s corporate trust line of business may be transferred, shall be the
      Escrow Agent under this Agreement without further act.




-5-




**7.**  **Taxes.**




**(a)**  For
      U.S.
      federal (and all relevant state and local) income tax purposes, each party
      hereto agrees to treat the party receiving the Escrow Amount as set forth in
      the
      Joint Written Instructions as the owner of the funds in the Escrow Account
      (including any portion thereof that is invested or reinvested under the terms
      of
      this Agreement) and any interest or other earnings on such funds, which shall
      be
      allocated to such party and so reported, to the extent necessary, to the
      Internal Revenue Service and any other taxing authority .




**(b)**  The
      correct Taxpayer Identification Number (“ TIN ”)
      assigned by the Internal Revenue Service for each Purchaser and the Company
      is
      set forth in Annex
      A .
      Promptly following the execution of this Agreement, each Purchaser and the
      Company shall, to the extent applicable, provide the Escrow Agent with a fully
      executed W-8 or W-9 Internal Revenue Service form.




**8.**  **Notices.** All
      notices and other communications required or permitted pursuant to this
      Agreement shall be in writing and be deemed to have been duly given and
      delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
      when
      sent by facsimile (provided confirmation of transmission is mechanically or
      electronically generated and kept on file by the sending party); or (iii) one
      (1) business day after deposit with an internationally recognized courier
      service, in each case properly addressed to the party to receive the same.
      The
      addresses and facsimile numbers for such communications shall be:




If
      to the
      Purchasers:





Lehman
      Brothers Commercial Corporation Asia Limited


24F,
      Two
      International Finance Center


8,
      Finance Street


Central,
      Hong Kong


Attention:
      Steven Qian


Facsimile:
      (852) 2372-5468





and





YA
      Global
      Investments, L.P.


c/o
      Yorkville Advisors, LLC


101
      Hudson Street, Suite 3700


Jersey
      City, NJ 07302


Attention:
      David Gonzalez


Facsimile:
      (201) 985-8744




-6-





With
      a
      copy to:





Goodwin
      Procter LLP


901
      New
      York Avenue, N.W.


Washington,
      DC 20001


Attention:
      James A. Hutchinson, Esq.


Facsimile:
      (202) 346-4444





If
      to the
      Company:





China
      Automotive Systems, Inc.


No.
      1
      Henglong Road


Yu
      Giao
      Development Zone


Shashi
      District, Jing Zhou City


Hubei
      Province, People’s Republic of China


Attention:
      Hanlin Chen


Facsimile:
      (86) 27-5980-8808





With
      a
      copy to:





Heller
      Ehrman LLP


4350
      La
      Jolla Village Drive, 7 th Floor


San
      Diego, CA 92122


Attention:
      Hayden J. Trubitt, Esq.


Facsimile:
      (858) 587-5903





If
      to the
      Escrow Agent:




U.S.
      Bank
      Corporate Trust Services


1021
      E.
      Cary Street, Suite 1850


Richmond,
      VA  23219


Attention:
      Stephanie E. Haysley


Facsimile:
       (804) 343-1572





or
      to
      such other address as such party shall specify by written notice to the other
      parties hereto. Any notice sent to the Escrow Agent shall also be sent to the
      other parties to this Agreement.




**9.**  **Fees
      and Expenses** . All
      fees
      and expenses of, and incurred by, the Escrow Agent in connection with the
      performance of its obligations hereunder shall be paid one-half by the Company
      and one-half by the Purchasers (in accordance with their respective Applicable
      Percentages) in accordance with Annex B. In addition, the Escrow Agent shall
      be
      reimbursed for all its reasonable out-of-pocket expenses, including attorney’s
      fees, travel expenses, telephone and facsimile transmission costs, postage
      (including express mail and overnight delivery charges), copying charges and
      the
      like. All of the compensation and reimbursement obligations set forth in this
      Section 9 shall be payable upon demand by the Escrow Agent, after presentation
      of a statement in reasonable detail by the Escrow Agent.




-7-




**10.**  **Assignment.** The
      Purchasers and the Company may assign rights under this Agreement to the same
      extent they are permitted to assign their rights and obligations under the
      Purchase Agreement.




**11.**  **Miscellaneous.** This
      Agreement, and with respect to the Purchasers and the Company, the Purchase
      Agreement, embody the entire agreement and understanding of the parties
      concerning the Escrow Amount, and, in the event of any inconsistency between
      this Agreement and the Purchase Agreement, the Purchase Agreement shall control.
      This Agreement may be amended or waived only by a writing signed by the Company,
      the Purchasers and the Escrow Agent. The headings in this Agreement are intended
      solely for convenience of reference and shall be given no effect in the
      construction or interpretation of this Agreement. This Agreement shall be
      governed by and construed in accordance with the laws of the State of New York.
      This Agreement shall bind and inure to the benefit of the parties hereto and
      their respective successors and permitted assigns. This Agreement may be
      executed in two or more identical counterparts, all of which shall be considered
      one and the same agreement and shall become effective when counterparts have
      been signed by each party and delivered to the other party; provided that a
      facsimile signature shall be considered due execution and shall be binding
      upon
      the signatory thereto with the same force and effect as if the signature were
      an
      original, not a facsimile signature.







[ *SIGNATURE
      PAGE FOLLOWS* ]




-8-




To
      evidence their agreement, the parties have caused this Escrow Agreement to
      be
      executed on the date first written above.


**PURCHASERS:**
            LEHMAN
              BROTHERS
              COMMERCIAL CORPORATION ASIA LIMITEDBy:
            /s/
              Steven
              J. QianName:
                Steven J. Qian
              Title:  
                Senior Vice President


YA
              GLOBAL
              INVESTMENTS, L.P.By:
            /s/
              Yorkville Advisors, LLC,Investment ManagerBy:
            /s/ Mark
              AngeloName:
                Mark Angelo
              Title:  
                President and Portfolio Manager


**COMPANY:**
            CHINA
              AUTOMOTIVE
              SYSTEMS, INC.By:
            /s/
              Hanlin
              ChanName:
                Hanlin Chan
              Title:  
                Chairman






*[Escrow
      Agreement Signature Page]*









**ESCROW
              AGENT:**
            US
              BANK NATIONAL ASSOCIATIONBy:
            /s/
              Stephanie
              E. HaysleyName:
                Stephanie E. Haysley
              Title:  
                Vice President




*[Escrow
        Agreement Signature Page]*





**ANNEX
      A**





**Purchaser**
            
            **TIN**
            
            **Applicable
                Percentage**Lehman
                Brothers Commercial Corporation Asia Limited
            
            
            N/A
            
            
            85.7142858
            %YA
                Global Investments, L.P.
            
            
            13-4150836
            
            
            14.2857142
            %**Total**
            
            
            
            
            
            **100.0000000**
            **%**












**ANNEX
      B**





Escrow
      Agent Fees .





Acceptance
                Fee:
            
            $WaivedAdministration
                Fee:
            
            $1,250Transactional
                Costs:
            
            $WaivedOut
                of Pocket Expenses:
            
            $Waived




The
      Administration Fee is payable upon execution of the escrow documents. In the
      event the escrow is not funded, the Administration Fee and all related expenses,
      including attorneys’ fees, remain due and payable, and if paid, will not be
      refunded.





The
      fees
      quoted in this schedule apply to services ordinarily rendered in the
      administration of an Escrow Account and are subject to reasonable adjustment
      based on final review of documents, or when the Escrow Agent is called upon
      to
      undertake unusual duties or responsibilities, or as changes in law, procedures,
      or the cost of doing business demand. Services in addition to and not
      contemplated in this Escrow Agreement, including, but not limited to, document
      amendments and revisions, non-standard cash and/or investment transactions,
      calculations, notices and reports, and legal fees, will be billed as
      extraordinary expenses.





Unless
      otherwise indicated, the above fees relate to the establishment of one escrow
      account. Additional sub-accounts governed by the same Escrow Agreement may
      incur
      an additional charge. Transaction costs include charges for wire transfers,
      checks, internal transfers and securities transactions.





To
      help
      the government fight the funding of terrorism and money laundering activities,
      Federal law requires all financial institutions to obtain, verify and record
      information that identifies each person who opens an account. For a
      non-individual person such as a business entity, a charity, a Trust or other
      legal entity Agent will ask for documentation to verify its formation and
      existence as a legal entity. Agent may also ask to see financial statements,
      licenses, identification, and authorization documents from individuals claiming
      authority to represent the entity or other relevant documentation.




Acknowledgement:




LBCCA
            
            _________ [initials]
            
            _________ [date]YAGI
            
            _________ [initials]
            
            _________ [date]Company
            
            _________
              [initials]
            
            _________ [date]