Financial Leasing Fills the Gap in the Industry and Continues to Usher in Development Opportunities

Small and medium enterprises are the new force of national economic and social development and an important role in expanding employment, improving our livelihood, and promoting entrepreneurship and innovation. However, it is difficult to obtain loans from banks for most SMEs and other high-quality customer resources that have been brushed down by the bank due to the credit and guarantees. Since the financing sources of these companies are left blank, the financial leasing emerges at the historic moment, regarded as a beacon for these customers.

Finance lease is a credit method with financing as its direct purpose. The usual method of it is that the lessee intends to lease the leased items and the lessor is willing to lease them to the lessee after assessing the risk of the leased project.To obtain the leased object, the lessor first purchases the leased object selected by the lessee with full financing, and collects the rent according to the fixed interest rate and lease period. During the entire lease period, the lessee has no ownership but has the right to use, which is responsible for repairing and maintaining the leased items.

Both the Lessee And the Lessor Benefit

For the lessee, since the lease expenses are regarded as operating expenses, it is easy to make decisions. The method of financial leasing has the characteristics of project financing, which is repaid by the benefits generated by the project itself, and the lessor only retains limited rights and interests in the project. Besides, compared with the bank borrowing conditions of a lump-sum loan and a lump-sum return, the leasing company’s capital contribution conditions are easier. They can customize flexible repayments for companies according to the specific circumstances of each company’s financial strength and sales seasonality.

For lessors, more and more companies want to expand leases instead of blindly selling directly to achieve sales, which greatly reduces the purchase threshold, expanding customer purchasing power to expand product sales and increase market share. At the same time, the lessor pays more attention to the future income of the project. Since the lessee cannot use the funds for other purposes, the lessor focuses more on the investigation of the future cash flow of the project, so that some lessee companies with high debt ratios but with good projects can also obtain equipment financing.

Financial Leasing Plays an Important Role in Supply-Side Reform

Financial leasing has played an important role in serving SMEs, optimizing resource allocation, and promoting industrial upgrading, which is a driving force for domestic economic growth.

During the "Thirteenth Five-Year Plan" period, the state implemented supply-side structural reforms to promote the transformation of the economic structure and optimize the allocation of resources, in which there is a shortage of funds in the early stage of the development of high-tech industries, and the elimination of outdated production capacity in traditional industries and the acceleration of the transformation and upgrading of the industrial structure will generate capital and equipment demand. Financial leasing can not only solve the capital needs for enterprises, but also help then introduce new equipment and new technologies. Therefore, financial leasing will play an important role in the "supply-side reform" process. This in return provides opportunities for the development of the domestic financial leasing industry. From historical data, the number of domestic financial leasing companies is increasing, from 1,026 in 2013 to 12,130 in 2019, including 70 financial leasing companies, 403 domestic leasing companies, and 11,657 foreign leasing companies.

From the perspective of segmented business, financial leasing in 2019 was about 2503.0 billion yuan, an increase of 3 billion yuan from 2018, accounting for 37.62%; domestic-funded leasing was 2,081.0 billion yuan, an increase of 1 billion yuan from 2018, accounting for 31.27%; foreign-funded leasing was about 2.070 billion yuan, accounting for 31.11%.

The Belt and Road Initiative and the Strategy of Made in China 2025 Offer New Opportunities for the Financial Leasing

With the continuous advancement of supply-side reform and the continuous deepening of oriented policies such as The Belt and Road and Made in China 2025, economic restructuring and technological innovation drive a large amount of fixed asset investment demand, and financial leasing will be in the industrial structure, which is facing good development opportunities as an important role in the transformation and upgrading.

Since most countries along the Belt and Road are developing countries where the degree of industrialization is low, but the desire for economic construction and social development is strong, with a large demand for investment in infrastructure, providing an excellent market opportunity for the financial leasing industry to accelerate its internationalization. The most important feature that distinguishes the financial leasing from other financial industries is that it has the dual attributes of financing and financial assets, and spans industry and finance, which makes leasing an irreplaceable advantage in the Belt and Road.

Key Distribution in Coastal Areas

Currently, 31 provinces, cities, and districts in China have established financial leasing companies. But the vast majority of them are still located in coastal areas. Data show that in 2019, the total number of financial leasing companies in 10 provinces and cities including Guangdong, Shanghai, Tianjin, Liaoning, Shandong, Beijing, Fujian, Jiangsu, Zhejiang, and Shaanxi accounted for about 95.41% of the total. In terms of registered capital, Tianjin Bohai Leasing ranked first with 22.101 billion yuan in 2019.

The domestic financial leasing industry is improving. However, compared with the leasing market in developed countries, it is still in the initial stage of development, with a large market capacity and relatively loose competition. With the gradual development of the financial leasing industry to a mature stage, it is expected to form a differentiated industrial chain among different leasing companies in the future due to differences in customer and business positioning. At the same time, competition in some market segments will also become increasingly fierce, with high-quality companies take the superior position. Besides, with the gradual implementation of unified supervision of the financial leasing industry, the business development model of financial leasing companies will be adjusted, which in return will play a positive role in integrating financial supervision resources and dissolving financial risks, which will promote the healthy development of the financial leasing industry. Therefore, we believe that the domestic financial leasing industry will be further developed in the future.

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