Financial leasing companies look overseas

By Cai Xiao (China Daily)
Updated: 2011-05-26 10:48
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BEIJING - Chinese financial leasing companies are improving rapidly and will soon begin to look for international opportunities, according to officials.

"Financial leasing companies have improved rapidly in terms of their capital and profitability capabilities," said Cai Esheng, vice-chairman of the China Banking Regulatory Commission (CBRC).

He said that the assets of 17 financial leasing companies controlled by commercial banks have reached 364 billion yuan ($56 billion), 25 times higher than in 2007. The companies made a combined net profit of 1.3 billion yuan in the first quarter of 2011, 39 times higher than in 2007.

According to the China Association of Enterprises with Foreign Investment, the trade volume of China's financial leasing market was approximately 420 billion yuan in 2010, with 200 billion yuan coming from the companies regulated by the CBRC and around 220 billion yuan from the hundreds of companies managed by the Ministry of Commerce.

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"Internationalization is the trend for Chinese leasing companies, because it can help them to perfect their business patterns and lower liquidity risks," said Li Xiaopeng, director of the Financial Leasing Committee at the China Banking Association, and also vice-president of Industrial and Commercial Bank of China Ltd (ICBC).

According to Li, profitable business patterns for direct financing leasing and operating leasing do not develop well in China, because the country is still in a developmental stage.

In direct financing leasing, the owner of the asset, or lessor, is not a manufacturer or dealer. Instead, he purchases the item purely for the purpose of leasing it to avoid the necessity of storing items, which leads to lower costs.

In operating leasing, the term of a lease is short compared with the useful life of the asset being leased, allowing a more efficient allocation of resources.

Li added that domestic companies may not find a receptive domestic market in which they can develop their direct financing leasing business, and so they must try going abroad because the business is much more popular in overseas markets. However, he warned that the different laws and accounting regulations should be considered carefully.

Li also said that leasing terms in China are unfavorable as they are usually longer than five years, but debts are usually on short-term loans.

"To solve the problem, taking advantage of the international capital market is vital," Li said, who is encouraging companies to issue convertible bonds abroad to prevent liquidity risks.

According to Li, the supply of global funds has increased and many overseas commercial banks have started to operate airline and shipping businesses again.

"Chinese companies should pay attention to the global market to find good opportunities," Li said.

In March, the nation's largest financial leasing company, ICBC Leasing Co Ltd, demonstrated its ambition to become an international player by signing an $8 billion agreement with Canada-based Bombardier Inc to develop their aviation businesses.

The company has also built strategic cooperation with the Export-Import Bank of China and will receive 10 billion yuan to invest in airplanes, shipping and other equipment.