"The Chinese government wants to select those banks that have large asset scales and solid financial status to experiment on such a new business in order to reduce risks," an industry insider said on condition of anonymity.

Bank of China (BOC), however, will not join the first batch of banks to develop the business on the mainland, a source close to the bank said. The bank is considering developing financial leasing overseas, instead. BOC had acquired a 100 percent stake in Singapore Aircraft Leasing Enterprise, the largest aircraft leasing company in Asia, in December.

To date, there are 12 financial leasing companies under CBRC's regulation, all of which were approved before 1995. The new rule is likely to make commercial banks the most common investors in the industry.

With banks entering the financial leasing business, the industry is expected to undergo a rapid expansion period after years of stagnancy caused by a limited capital supply since it was introduced into China 26 years ago.

"There will be a great reshuffling among financial leasing companies, and by acquiring existing financial leasing firms or setting up new ones, commercial banks will diversify their financial services, develop non-interest income and boost competitiveness," She Minhua, banking analyst with CITIC China Securities, said.

Financial leasing is an intersection of financing and leasing. Unlike renting, in which the owner remains the same after the deal is completed, financial leasing eventually leads to a transfer of ownership.

(China Daily 03/07/2007 page14) 

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