Boost for
lease finance business
04/16/2003
China Daily
More domestic leasing companies will be allowed to do lease-financing
business as the authorities lower the capital threshold and ease regulation
to boost the industry.
Sources at the Ministry of Commerce said that 34 domestic leasing
companies had applied for lease-finance permission; of which about
20 are expected to get approval soon.
Most of the companies are involved in equipment and vehicle leasing
in Beijing, Shanghai and eastern coastal provinces.
Lease financing entitles the lessee the use of the property for
which rent and interest are paid according to terms fixed in the
contract. At the end of the lease period, there is an option to
acquire the property.
In many cases, the lessee chooses to buy the leased property, which
therefore makes lease financing an attractive channel for the manufacturers
to promote and sell their products.
It is the second-most important financing channel in international
markets, after bank loans. It is estimated that lease financing
contributed to about 20-30 per cent of the gross domestic production
in developed countries and 30 per cent of total sales.
In China, the industry experienced a short-lived boom in the 1990s,
but loopholes in regulation and overexpansion led to chaos. The
central bank then enacted a regulation in 2000 to tighten supervision,
and set up a minimum 500 million yuan (US$60 million) registered
capital threshold.
But the situation has improved after most of the lease finance
companies have completed restructuring and demand on the rise, said
Sha Quan, director of the Department of Information and Training
at the China Society of Finance's Financial Leasing Committee.
The authorities are emphasizing more on the development of the
industry, while in the past, the regulators focused more on self-discipline
and regulation, said Sha.
For example, it would only require 170 million yuan (US$20 million)
minimum registered capital for a domestic leasing company to do
lease finance business, the same as the US$20 million threshold
set for foreign-invested leasing companies in a 2001 regulation.
While China has not allowed solely foreign-funded leasing companies,
joint ventures have been taking a bigger market share from domestic
companies, said Qu Yankai, deputy director of the China Foreign-funded
Enterprises Association's Leasing Committee.
IBM and Siemens have both set up joint-venture leasing firms, with
more foreign big names eyeing the market.
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