Leasing Sector: Financial Leasing on the Rise

特棒帅小伙

On March 5, a new regulation came into force on a trial basis in China that will permit foreign investors in the leasing sector to set up wholly-owned companies. The move was made as part of the country"s WTO commitment in this area. Meanwhile, the capital threshold for foreign investment in the sector has been lowered, with the minimum registered capital for a foreign-invested financial leasing company reduced from US$20 million to US$10 million.

A number of foreign companies including banks, specialized leasing companies and manufacturing enterprises are now reported to have now applied to set up wholly-owned leasing companies in China. On March 29, Siemens Financial Services Limited (SFS) announced the establishment of its wholly-owned financial leasing subsidiary in China, Siemens Finance and Leasing Ltd (SFLL). Last year, GE Capital and the US-based construction equipment manufacturer, Caterpillar, founded pilot wholly-owned financial leasing firms in China. With the opening up of the sector, more players, especially multinational companies, will arrive on the market and more competition is expected.

"This is good. This will help to promote the market. Hopefully all the players will contribute in the development of the market," says Li Siming, general manager of Newcourt Leasing Corporation. He thinks competition in the market is normal. In addition, the market has different demands and companies have different beats.

INDUSTRY DEVELOPMENT
Since the establishment of China"s first financial leasing company, China Eastern Leasing Co Ltd, which was set up by three companies including China International Trust & Investment Corp (CITIC) and the Japanese Orix Corp, the sector has witnessed many ups and downs. According to Qiu Qiyang, senior advisor of the Financial Leasing Professional Committee, China Society of Finance, these fluctuations have mostly been related to the changes taking place in the country over that time, including the transformation from planned economy to market economy and exchange rate adjustments.

In the early 1980s, Chinese factories were in need of both equipment and funds. To upgrade production technology and equipment, there was a need to import. But shortage of funds, especially foreign currency, hindered the country"s economic development. At that time, a number of financial leasing companies emerged as a channel of introducing foreign funds. The sector distinguished itself among others by the fact that it was dominated by Sino-foreign companies, explains Qiu. Many of the foreign investors were Japanese companies and, thanks to the sellers" market in China, the investors were well paid off.

However, as the market changed and more suppliers came onto the market, companies had to be more responsible for selling their products and it was becoming more difficult for leasing firms to collect money owed. At the end of the 1980s and the beginning of the 1990s, many financial leasing companies went into crisis and rents were in arrears, according to Qiu. To help solve the problem and protect the country"s credit, the Chinese government paid off a significant amount of the debt. From the mid-1990s, more multinationals from Europe and the America, including IBM, CIT, Siemens and HP, started to enter the leasing market forming joint ventures with their Chinese partners. In recent years, China has been trying to clear up the sector and put it in order. In 2003, there were a total of 21 financial leasing companies in China, of which 11 were Sino-foreign ventures.

IMMATURE MARKET
Given the dynamic economic development in China and changes in the economic environment, the financial leasing companies" function of introducing foreign funds has seemingly now been halted. Many Chinese companies are in need of advanced technology and management modes rather than capital. The production capacity of domestic and foreign manufacturers in China gives a sufficient supply or even surplus in numerous industries. Meanwhile, the Chinese financial market has opened much more than what people expected in the early 1980s. China"s foreign exchange reserve, for example, reached US$609.9 billion as of the end of 2004. However, one group of foreign investors who remain interested in the China market is equipment manufacturers. Capital is not the core but promotion of their products is.

There is certainly a great deal of potential to be mined by these foreign investors. In most developed countries, financial leasing plays a significant role in the economy. Together with banking and securities, it is an important financial instrument. In China, however, the sector is still in its infancy. Qiu explains that the investment in equipment upgrading in China reached 844.4 billion yuan (US$101.7 billion) in 2003, of which financial leasing accounted for only 2.07 percent. The percentage was even lower in 2004, according to Qiu. It is reported that the leasing sector in the US contributes over 30 percent of the country"s GDP, while in China it stands at 0.03 percent. Still, as a financial leasing company requires a large amount of capital as well as professionals in the specialist areas, many manufacturers prefer to cooperate with leasing companies rather than set up their own.

GLOBAL LINKS
Newcourt Leasing Corp. is a joint venture established in 1998 by the US-based CIT and two Chinese companies, CETIC and CITCC. Registered capital totals US$15 million and CIT holds 55 percent of the company"s stake. Vendor financial services are a major part of the company"s business. In contrast to the history of the sector in general, Li Siming, general manager of Newcourt, claims that the development of the company has been stable since it was founded and that average annual growth stands at 30 percent. The company"s clients have numbered between 700 and 800. As many as 75 percent of these clients have been multinational companies, although clients also include domestic private companies, according to Li. Working with large manufacturers to help them promote their products through leasing and providing them with financial consulting service plays a key role in the business expansion. The company is mainly involved in industries including IT and securities, as well as printing, medical, construction and office equipment. IT represents around 25 to 30 percent of the total while medical equipment about 20 percent.

Newcourt has benefited from its resources that include global clients and management systems provided by CIT, the company"s majority owner, which was founded in 1908. CIT is one of the leading leasing companies in the world and has forged long-term partnership with more than 300 global vendors. With multinational manufacturers expanded their businesses in China, the demands for financing services through leasing companies has followed this trend. However, developing domestic clients has not been easy, especially as many Chinese enterprises are not familiar with the financial leasing business and are not aware much of the benefits the service will bring to them.

Risk evasion is crucial to a financial leasing company. Newcourt adopts the management process of CIT, including acquiring information about a company"s credit, analyzing the data and decision-making. Li thinks that to study market segmentation it is one way to help reduce the risk, while taking risk evasion measures at the early stage is also very important. Although China still lacks a sound credit reporting system, when dealing with domestic companies (which include private enterprises) the company activates its own system. The bad debt rate of the company is under 0.5 percent. Li says that so far Newcourt has no rival on the domestic market. He explains that in some specific areas, such as IT, the company has competitors but for the overall financial leasing business, there are none.

"In the past, there were irregularities on the market and the number of specialized leasing companies from Europe and America was small. I hope the operators in the sector consider the stability and financing on a medium and long term basis," says Li.

特棒帅小伙

老新闻了，贴出来下。

特棒帅小伙

论坛上有搞法律的战友吗，知道中国租赁法有出台的日程表了吗？