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Financial leasing sees explosive growth

By Qiu Chen  (Global Times)

07:30, June 01, 2012

The assets of financial leasing companies supervised by the China Banking Regulatory Commission (CBRC) were worth a combined 600 billion yuan ($94.22 billion) by the end of the first quarter of 2012, up 236 billion yuan or 64.84 percent year-on-year, Cai Esheng, vice president of the CBRC, said Thursday at the 3rd China Financial Leasing Summit.

Financial leasing services - which usually involve a leasing company buying assets chosen by a lessee, who has the option to own the assets eventually - are experiencing rapid growth in China, where the industry is still in the early stages of development, Guo Tianyong, director of the Research Center of the Chinese Banking Industry, told the Global Times.

According to the CBRC, when China revised its regulations on financial leasing in 2007, allowing financial institutions to step into the industry, most of the new leasing entities began focusing on specialized assets, such as machinery, airplanes, power equipment and ships.

China's tightened monetary policy, combined with a slowing economy, has helped expand the industry, say experts.

"With reductions in credit quotas, many commercial banks are developing financial leasing service to enlarge their profits," said Guo.

Moreover, as companies, especially small and medium-sized enterprises (SMEs), lost incentive to purchase new assets outright thanks to slowing economic growth, they have increasingly been turning to financial leasing service companies for the equipment or facilities needed to keep their businesses running, said Wu Hong, vice president of the China Banking Law Society.

"Financial leasing is primarily a method of raising money to pay for assets rather than just renting them," Wu said. "It is less risky for capital holders to buy, and hold ownership rights to, a specific asset and then lend it to a party who needs it rather than directly lending out money. It is also convenient for borrowers, as they don't have to supply collateral as they would in traditional financing."

Financial leasing companies have conducted 172 billion yuan in business with SMEs by the first quarter, said Cai.

Despite its impressive growth, without unified standards and supervision, the industry could suffer, said Wu.

Financial leasing companies are separately supervised by the CBRC and the Ministry of Commerce, which have different entry thresholds and regulations, Wu explained.

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