Arab Today, arab today china boosts financial leasing to fund moneystarved firms
Last Updated : GMT 02:18:28
Arab Today, arab today
Arab Today, arab today

China boosts financial leasing to fund money-starved firms

Arab Today, arab today

Arab Today, arab today China boosts financial leasing to fund money-starved firms

Subsidiary of Industrial and Commercial Bank of China
Beijing - XINHUA

Chinese companies will soon be less dependent on stingy banks and a volatile market for financing thanks to new support policies in the financial leasing industry.

The State Council, China's cabinet, mapped out measures in a regular meeting on Wednesday to help the burgeoning sector in hopes that it will provide cheaper funding options and better serve the real economy.

The government vowed to cut red tape, eliminate the minimum capital threshold for financial leasing companies to set up subsidiaries and simplify procedures for leasing equipment such as ships, farming machinery, medical devices and aircraft.

The move is the latest effort by the central authority to relieve firms of heavy borrowing burdens and stimulate slowing economic growth.

In a finance lease, firms can ask a financial leasing company to purchase the assets they need and then pay a rental fee to use them. After the lease, the firms have the choice to acquire ownership of the assets.

It is estimated that the financing costs are at least 10 percent lower than equivalent bank loans.

Cheaper and more tailored to borrowers' needs than traditional loans, financial leasing also requires less collateral, and is thus favored by startups and enterprises with weaker credit.

Guo Tianyong, a banking and finance professor of Central University of Finance and Economics, described finance leases as a significant bridge connecting the financial sector and real economy.

"Its flexible financing will help solve the cash crunch for enterprises and enables them to quickly put production facilities into operation," Guo said.

An emerging sector, China's financial leasing witnessed booming growth over the past decade due to authorities' loosened grip and growing demand.

The sector saw the value of outstanding contracts jump more than 50 percent from a year ago to 3.2 trillion yuan (around 500 billion U.S. dollars) by the end of 2014, hundreds of times the volume in 2006.

There are currently 30 major financial leasing companies and more than 3,000 smaller ones in China. Nearly all leading banks in China have affiliates in the new business.

China's policymakers have also pinned high hopes on the sector. Premier Li Keqiang said its rapid development will spur investment in equipment and promote industrial upgrades.

Chinese firms, especially private ones, have struggled with a lack of money due to limited financing channels. Bank loans are costly and banks are biased against small companies, while the stock market is less stable and not yet mature.

To address the issue, the central bank has lowered lending interest rates five times and the deposit reserve requirement four times since November to encourage banks to make loans at a lower rate. The central government has also strived to improve and diversify financing channels, including loans, corporate bonds and a multi-layered stock market.

However, the difficulties persist partly due to rising disinflationary pressures and have become a stubborn problem for the broader economy.

China's GDP expanded 7 percent in the first half of 2015, marking the weakest growth rate since the global financial crisis.

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