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Foreign Investors Encouraged to Enter Financial Leasing Firms
China will allow more foreign investors to enter domestic financial leasing firms to improve the quality of management in the sector, a spokesman with the People's Bank of China (PBOC) said Tuesday.
The central bank encourages financial leasing firms with problems to bring in foreign investors to help with asset restructuring. As such, some domestic companies have already applied for foreign investment.
The bank released a circular Tuesday to regulate the management of financial leasing firms, in a bid to reinforce its supervision of the sector and to promote investment.
The circular specified the scale to which leasing firms will be allowed to grow, mapped out requirements for management and outlined punishment for illegal practices.
The companies will now be allowed to borrow hard currencies from overseas and issue treasury bonds with the approval of the PBOC.
They will also be allowed to invest in securities and take out stakes in financial institutions, the circular said.
The new regulation also stipulated that foreign investors will be able to buy stakes in domestic financial leasing firms.
The first Sino-foreign leasing firm was established in China in the early 1980s. The number is now 46.
"The emergence of financial leasing joint ventures will not be too much of a shock to domestic enterprises," said the spokesman.
China has gradually taken away favorable tax treatment for the joint ventures, and as such, these Sino-foreign financial leasing firms are now competing under the same conditions as domestic companies.
Financial leasing firms are non-banking financial institutions approved by the PBOC to operate businesses that offer financial help and leases.
The new ruling has made it necessary to have more capital to set up a financial leasing company, raising sharply the required minimum from 30 million yuan (US$3.6 million) to a new minimum of 500 million yuan (US$60.24 million).
For those involved in the foreign exchange business a minimum of 550 million yuan (US$66.27 million) is now required.
"The adjustment is designed to control the degree of risks," the central bank official said.
Some of the domestic financial leasing firms that have serious financial problems or have been acting illegally may be closed down by the central bank, he said.
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