Bo Ya

A guide published by the Leasing Business Committee (LBC) of China Association of Enterprises with Foreign Investment (CAEFI) recently shows that the number of various financial leasing companies has exceeded 160 in China, of which, 37 are pilot financial leasing companies jointly approved by the Ministry of Commerce (MOC) and the State Administration of Taxation (SAT); 17 are approved by China Banking Regulatory Commission (CBRC); and 110-plus are foreign-invested ones approved by MOC.

The guide claims that China will strive to bring the number of financial leasing companies to 1,000 in three years, and bring the scale of assets under management of financial leasing companies up to over RMB1.2 trillion, with the annual business volume no lower than RMB600 billion.

Financial leasing is a huge industry worldwide, and involves such sectors as house leasing, equipment or instrument leasing, auto leasing, cell leasing, aviation leasing, talent leasing, books and audio and video leasing, garments leasing, toy leasing, and outdoor sports goods leasing, and the industrial penetration is wide.

Financial leasing only originated in the early period of the introduction of opening up policy in China. In the 1980s, Sino-foreign joint venture financial leasing companies once flourished as an important window for China to use foreign capital under the planned economic system. However, as reform of economic system deepened and affected by transformation of State-owned enterprises, invalidity of guarantee, and drastic change of exchange rate, financial leasing was obsessed with heavy overdue repayment in the 1990s, when financial leasing companies have experienced big rectifications and re-registration. Entering the 21st century, China’s financial leasing industry began to recover. In March 2007, the newly revised “Measures on Administration of Financial leasing Companies” began to be implemented, allowing qualified financial institutions to buy into shares or establish financial leasing companies. This has greatly boosted rapid development of financial leasing industry in China.

Statistics of askci.com show that the business volume of financial leasing of 70 enterprises that engage in the business reached RMB155 billion in 2008, including about RMB63 billion for 11 financial leasing companies; RMB50 billion for 34 foreign-invested leasing enterprises; and RMB32 billion yuan for 25 domestic leasing enterprises. The industry has resolved the problem of “difficulty in sale” and “difficulty in financing” for a number of equipment manufacturers and enterprises, small and medium-sized enterprises (SMEs) in particular.

Nevertheless, worldwide speaking, financial leasing is still in the initial stage in China, and is far from reaching the desirable scale; and the penetration rate of financial leasing (the rate of lease transaction in total social investment in equipment) is less than 3%, as against over 25% in developed countries and over 30% in the US. The condition of leasing industry in China is out of step with the rapid economic development in the country.

Major problems that hinder development of leasing industry in China are: 1. High market threshold. CBRC stipulates that the minimum registered capital for a financial leasing company is RMB100 million or equivalent currencies that can be converted freely. MOC also sets a minimum registered capital of no lower than US$10 million restriction on foreign-invested leasing companies. According to stipulations on Chinese leasing enterprises piloting financial leasing published by MOC and competent departments, enterprises that pilot financial leasing should meet following requirements: domestic leasing enterprises established before August 31, 2001 (including the day) should have minimum registered capital reaching RMB40 million, and those established between September 1, 2001 and December 31, 2003 should have minimum registered capital reaching RMB170 million. Such high threshold has hindered light-type, regional and professional leasing companies from entering the sector. Main business of the financial leasing companies of China’s banking system is large equipment at present, say aircraft, and boat.

2. Singular financing channel. Except capital stock, leasing companies basically rely on bank loans. 3. Unsound regulations. Financial leasing has four big frameworks: trading rules, supervision rules, taxation standards and accounting standards, but there are imperfections. For example, the financial leasing chapter of the “Contract Law” can hardly adjust the civil relation between the belonging and use of goods in financial leasing transaction, it needs supervision system to clarify, and fiscal and taxation policy to specify. It is still a blank in statistical system, and related industrial organization and self-disciple need to be improved urgently.

Moreover, there are such problems as incomplete type of professional financial leasing institutions, unbalanced distribution of institutions, limited service area, lack of financial leasing experts, and lack of supporting policies existing in China’s financial leasing industry at present.