Banking regulator to allow cheaper financial leasing to companies

China's banking regulator pledged on Wednesday to broaden the fund-raising channels for the country's financial leasing companies to provide cheaper financing services for cash-strapped firms.

Financial leasing companies are encouraged to raise funds by issuing bonds, asset-backed securities as well as setting up overseas subsidiaries to gain access to international funds, Mao Wanyuan, an official at the China Banking Regulatory Commission told a news conference.

At present, financial leasing companies in China rely on traditional bank lending as their main source of financing, which in turn results in higher financing costs for companies that are in need of capital to purchase assets and expand business.

On Monday, the State Council, China's cabinet, issued a guideline to boost the financial leasing business in a move to better facilitate the country's industrial upgrade and economic transition.

The central government's support of the financial leasing business is aimed to reduce the debt obligations of companies, improve capital allocation efficiency and to better serve the economy that is facing increasing downside pressure.

It is also designed to support the country's start-up companies, new strategic industries as well as the national strategy of the Belt and Road Initiative to revive the ancient land-based and maritime silk roads.

Financial leasing is a financing method that allows companies to acquire or use a certain asset by paying a series of rentals or installments. At the conclusion of the leasing period, the lessor (the financial leasing company) would recover the initial cost of the asset and earn interest from the rentals paid by the lessee.

Chen Min, president of Bank of Communications Financial Leasing Co Ltd said that the new guideline issued by the central government will encourage more domestic companies to participate in international competition.

Chen said his firm is considering setting up more overseas subsidiaries to raise funds in the international markets at a cheaper cost.

The total assets of China's financial leasing sector have reached 1.45 trillion yuan ($227.5 billion) with a non-performing loan ratio of 0.81 percent, according to the banking regulator.

A majority of financial leasing companies in China are owned by commercial banks and are regulated by the banking regulator.