By Yin Pingping
In the global capital market, financial lease has become a tache connecting the financial capital, commercial capital and industrial capital, and together with bank credit and securities, they are called three main financing tools. With the recent opening of Financial Leasing Co., Ltd of China Merchants Bank in Shanghai, China's first batch of five experimental commercial banks have finished the establishment of the financial leasing companies.
The basic operation mode of financial lease is: based on the contract agreed by both parties in advance, the lessor shall buy the specified fixed asset from a specified seller according to the requirements of lessee, and collect rent from the said lessee on the precondition that the lessor has the ownership of the fixed asset, and take the rent as a condition to transfer the right of possession, use and income to the lessee for some period.
It is introduced that the financial lease includes three major types of products: financial lease for fund circulation, operating lease and sale-leaseback.
Early in this year, ICBC Financial Leasing Co., Ltd. and Grand China Express Co., Ltd. signed a financial lease agreement on five ERJ145LR planes. According the agreement by both parties, the Grand China Express Co., Ltd. will buy back the planes at a fair price upon expiration of the lease term, which fully reflects the characteristics of financial lease with fund circulation: at the end of the lease term, the lessor shall automatically transfer or sell at nominal price the asset to the lessee. The financial lease features simple financial application, and enables the lessee to flexibly arrange the leasing term and rent based on its financial situation.
The operating lease differs from financial lease for fund circulation mainly in that the income right and risk of leasehold will not be transferred materially. Upon the leasing term expires, the lessor will keep rather than automatically transfer the leasing asset, or sell it to the lessee at fair market value than nominate price. For the operating leasing transaction, the leasing asset of the lessee will not be included in the balance sheet, and the rent payment shall be handled as the financial cost to offset tax. The operating lease is often used by enterprises for purchasing fixed assets.
The lessee in leaseback can sell its own equipments to the leasing company but keep the right to use the asset in question, and then leaseback it from the leasing company in the form of financial lease for fund circulation. In this way, the lessee can obtain the necessary funds and meanwhile provide the lessor with an investment opportunity to make profit.
After over-20-year development, the financial leasing mode of China is transiting from the traditional lease to the modern one, showing a wide development space and an excellent market prospect of the financial leasing industry.
As for banks, they can expand its service area by establishing the branch specializing in the financial lease. Gaobo, the relevant responsible person of the ICBC Financial Leasing Co., Ltd., expressed that the leasing business would improve the bank to develop such emerging businesses as asset securitization, industry investment fund, asset entrust and finance product. Furthermore, the leasing asset has better fluidity and transferability than the credit asset, contributing to reduce the bad debt risk and asset disposal risk of bank. The leasing company can not only develop its clients based on the bank network, but also establish business cooperation with the bank to take advantage of the bank's business experience. At present, finance difficulty is one of the bottlenecks limiting the development of medium and small size enterprises, while the financial leasing business will meet such requirements of them.
As for enterprises, the appearance of financial lease will help them to be free from the restriction of single, indirect bank finance. Circulating funds by the financial lease, the enterprise can make larger profit from a certain investment, and therefore speed up its investment. For suppliers, the financial lease is beneficial for them to improve sale, get the product payment fast and expand the downstream users to enhance the profitability and allocate the productive resource reasonably. In addition, it can better the ratio of asset to debt, balance cash flow and increase the capital proportion and profit.
In the developed countries, the financial lease ranks as the second biggest financial method, only next to the bank credit. In 1981, the financial lease was formally introduced to China, and still in the initial stage of development by now. According to statistics, in 2006 the investment on fixed assets of our whole society totals RMB10, 990 billions Yuan; if the financial leasing permeability (namely, the percentage of leasing amount to equipment investing amount of the whole society) can reach 10 percent to 15 percent of the total, its scale will fall between RMB 1,000 billion Yuan and RMB 1,600 billion Yuan. But by the end of 2006, the actual market scale is only 50 billion Yuan, with the leasing permeability less than 2 percent, from which, we can expect an excellent developing prospect of the financial leasing market.
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