China’s Financial Leasing Market
Financial Leasing Industry in China Experienced Rapid Expansion over the Historic Period
The financial leasing industry in China experienced an extremely rapid growth during the historic period. According to China’s Financial Leasing Industry Development Report 《中国融资租赁发展报告》issued by the Department of Circulation Industry Development of Ministry of Commerce in China, the total registered capital of registered financial leasing companies in China increased from CNY 80.0 billion to CNY 556.5 billion in 2014. According to the same report, the outstanding contract value of financial leasing grew from CNY 700.0 billion in 2010 to CNY 4,440.0 billion in 2015, which is the latest data from the Ministry of Commerce of the People’s Republic of China, with an astonishing value increase of 534.3% in those five years. In addition, the number of actively operating financial leasing companies in China was 4,508 at the end of 2015, an impressive increase from 182 that were operating back in 2010.
Despite rapid expansion in the financial leasing industry in China, this industry’s development remains at an early stage in China. Compared to the United States’ rate of 22.0%, the penetration rate of financial leasing in China was merely 3.1% by the end of 2013, according to the Global Leasing Report from 2015. Financial leasing has already been considered the second-largest financial instrument in many developed countries, and the industry still has great room for growth in China for the forecast period.
Future Outlook of China’s Financial Leasing Market
Outstanding contract value of financial leasing in China is expected to achieve CNY 6,605.0 billion in 2016 and CNY 9,900.0 billion in 2017. This growth will be fueled by increasing demand from pillar industries’ attractions, and the growing number of logistics companies that will utilize the financial leasing market.
Loan Interest Rates Are Declining due to Favorable Policies
The prevailing CNY loan interest rate from the People’s Bank of China for financial institutions was trending down from 2010 to 2015. Loan durations are in 5 different increments: less than 6 months, 6 to 12 months, 1 to 3 years, 3 to 5 years, and more than 5 years. In 2010, the highest interest rate for financial institutions was 6.14% for a term of more than 5 years, but in 2015 the same duration loan was offered at a 4.9% rate, declining by 1.24 percentage points. The lowest interest rate in 2015 was 4.35% for durations of less than 6 months, and 6 to 12 months. The interest rate for less than 6-month loans decreased by 0.75 percentage points compared to that in 2010. The interest rate for 6 to 12-month loans decreased by 1.21%. The loan interest rate for financial institutions continues to decrease, riding on a trend of interest rate liberalization (利率市场化) in China. Due to the continuous decrease in loan interest rates for financial institutions, competition in the bank loan business between different banks is intensifying. Banks currently target large-sized and monopolistic enterprises with good corporate credit and positive financial reputations.
Financial Leasing Industry Growth will be Fueled by China’s Pillar Manufacturing Industries— Aviation
According to statistics from Civil Aviation Administration of China, China’s civil aviation industry has experienced a rapid growth in the past few years. In 2015, the passenger traffic volume of the whole civil aviation industry (全行业完成旅客运输量) reached 440.0 million, with a growth rate of 11.4% from 2014. Along with the boom of the tourism industry and the growth of middle-class population in China, planes will be a preferable choice for travel. These will lead to an increasing demand for aircrafts. Based on data from Civil Aviation Administration of China, the number of the transport airplane in service in China’s civil aviation industry grew from 2,370.0 in 2014 to 2,645.0 in 2015, representing a growth rate of 11.6%. As one of the China’s pillar manufacturing industries, the aviation industry has strong support from the Chinese government as well. According to the 12th Five-Year Plan from the General Administration of Civil Aviation of China, there would be 2,750 commercial airplanes in operation by the end of 2016 in China. Aviation is also listed as one of the 10 key sectors for future development according to the “Made in China 2025”（《中国制造2025》）.
Financial leasing is considered as an effective financing tool to support the pillar industry due to the large fixed asset demand of aircraft manufacturers. With the support from a more developed financial leasing industry and more abundant funding, this pillar industry will see more prosperous future growth, further fueling the growth of the financial leasing industry in China.
The Financial Leasing Market for Health Care Service Provider is Expanding
According to the National Bureau of Statistics, the aging population (60 years old or above) accounted for 16.1% of the total Chinese population in 2015. The gradually aging society brings a great demand for medical care and medical equipment. Moreover, in 2015, the urbanization rate reached 56.1% according to statistics from the National Development and Reform Commission. More and more people are expected to migrate to the city and the present medical resources are not enough to satisfy an increasing demand. Actually, there already exists a shortage in the medical and health resources sector, especially in medical equipment. In March, 2015, the State Council issued “the Outline for the Planning of the National Medical and Health Service System (2015–2020)” (《 国务院办公厅关于印发全国医疗卫生服务体系规划纲要(2015–2020年)的通知》), which indicated that the number of hospitalizations increased from 6.7 million in 2004 to 20.4 million in 2014, with an average annual growth rate of 11.8%. While the number of beds in medical institutions per thousand residents (每千常住人口医疗卫生机构床位数(张)) only reached 4.8 in 2014, whereas the target in 2020 will be 6.0 beds in medical institutions per thousand residents.
In addition, with the development of national economy, the per capita GDP reached CNY 50,251.0 in 2015, according to the National Bureau of Statistics. Referencing historical growth trajectories from developed countries, when the GDP per capita reaches USD3,000.0, domestic consumption enters a period of fast growth due to greater spending towards discretionary items by the consumers as their living quality improves. For example, based on the latest data from Chinese Association of Plastic and Aesthetics (中国整形美容协会), in 2014, there were 7.0 million plastic and aesthetics surgeries, and it also claimed that the annual demand for plastic and aesthetics may increase at a speed of 30%. The plastic and aesthetics surgery require high standard medical equipment and thus, the demand of the surgery can lead to an increasing growth for the high standard medical equipment.
In 2013, the State Council of the People’s Republic of China issued “Several Opinions of the State Council on Promoting the Development of the Health Service Industry” (《 国务院关于促进健康服务业发展的若干意见》). It encourages financial institutions to develop business in the health care sector, specifically targeting micro enterprises and innovative businesses. This will encourage more financial institutions to provide funds for health care services and to promote the development of financial leasing in the health care industry.
Rapid Development in Energy Conservation and Environmental Protection Promotes the Development of Financial Leasing
With the concern for environmental protection, since 2013, the State Council has addressed the Opinions on Accelerating the Development of the Energy-Saving and Environmental Protection Industry (《国务院关于加快发展节能环保产业的意见》), which stipulated that equipment of the key industries should be upgraded and energy-saving products should be developed. Meanwhile, it also instructed to expand financial channels for the energy-saving and environmental protection industry, and that the private capital and foreign capital were welcomed.
In 2015, the Ministry of Environmental Protection of the People’s Republic of China issued the “Analysis of the Impact on the Economy of Environmental Protection under the New Normal” (《新常态下环境保护对经济的影响分析》). The analysis noted that during the Twelfth Five-year plan period, energy conservation and environmental protection industries increased rapidly, at a rate of 15% to 20%.
In May, 2015, the State Council issued the Made in China 2025 (《中国制造2025》), which set a target that by the end of 2020, the emission intensity of the main pollutants of key industries should decrease by 20.0%. Thus, the development of the energy-saving and environmental protection industry can lead to a large amount of equipment to be transformed and upgraded.
In 2015, the State Council General Office issued the “Guidance on Promoting Sound Development of the Financial Leasing Industry”《( 国务院办公厅关于加快融资租赁业发展的指导 意见》), encouraging financial leasing companies to actively expand their business to include the energy conservation and environmental protection industries. China has proposed different rules for the different industries. For example, in 2014, The National Development and Reform Commission, the Ministry of Environmental Protection, and the National Energy Administration, released the “Action Plan on Upgrading and Transforming the Energy Conservation and Emission Reduction of Coal-Fired Power (2014–2020)” 《( 煤电节能减排升级与改造行动计划(2014–2020年)》). This plan proposed to decrease the proportion of coal based energy consumption in the overall primary energy consumption to 62.0% or less and to set a stricter standard for air pollutant emission. At the same time, the plan encourages private capital and social capital institutions to enter the energy saving business, and encourages banks and financial institutions to increase their credit support of coal and electricity projects for energy conservation and emission reduction. The rapid development of energy conservation and environmental protection industries can directly lead to the development of the financial leasing sector in this area.
Transportation
The urbanization rate in China reached 56.1% in 2015 based on the statistics from the National Development and Reform Commission. In order to increase the transport efficiency, dispersing the crowd and increasing the traffic facilities can work. Both the freight traffic volume and passenger traffic volume grow continuously. According to the latest data published by the Ministry of Communications of the People’s Republic of China, in 2014, the total freight traffic volume was 43.1 billion tons, growing by 6.9%; the total passenger traffic volume was 22.1 billion, increased by 4.1%. In December, 2015, the Ministry of Communications indicated that during the 13th Five Year Period, the transportation service should be upgraded. Besides, with the development of the e-commerce, the logistics industry also experiences a rapid growth. Thus, in order to pace with the growth, more transportation tools will be needed and upgraded.
Taxi is one of the important means of the public transport system in many cities in China. According to the Ministry of Transports of the People’s Republic of China, the number of the taxi in operation rose from 1.23 million in 2010 to 1.37 million in 2014. With the popularity of the mobile Internet, people can call taxi through mobile apps, which increases the loading volume of the taxi industry. Based on the data of the Ministry of Transports of the People’s Republic of China, the loading volume increased from 32.6 billion in 2010 to 40.6 billion in 2014. In October, 2015, the Ministry of Transports of the People’s Republic of China addressed the Guiding Opinions on Deepening Reform and Promoting the Healthy Development of the Taxi Industry (《关于深化改革进一步推进出租汽车行业健康发展的指导意见(征求意见稿)》), which focused on improving the service facilities, building the waiting area/room for the taxi services in the airport, railway station, ports, hospitals and the malls. As a result of increasing consumer demands for taxi services due to continued urbanization and improved living standards, more taxis will be needed and upgraded in the future. Financial leasing is considered as an effective financing tool to support the taxi operators. With the support of abundant funding, the taxi operator industry will see rapid future growth.
Public Utilities
The construction of the public utilities was controlled by the government before 2014, which meant that the social capital was difficult to enter these areas in China before 2014. Changes have occurred since 2014, in order to enhance the efficiency, the State Council issued “the Guiding Opinions on Innovation in Key Areas of Investment and Financing Mechanism to Encourage Social Investment” 《( 国务院关于创新重点领域投融资机制鼓励社会投资的指导意见》) (the “Guiding Opinions”) in 2014, which encouraged the social capital to enter the infrastructure of the water conservancy project, the construction of the electric power, and more financial channels are welcomed. The Guiding Opinions also mentioned the sector of water supply encouraged the social capital to enter as well.
More financial channels are welcomed since 2015. In March 2015, the National Development and Reform Commission addressed “the Implementation of Encouraging and Guiding the Participation of Social Capital in the Construction and Operation of Major Water Conservancy Projects”《( 关于鼓励和引导社会资本参与重大水利工程建设运营的实施意见》), which proposed to improve the mechanism of Public-Private-Partnership (“PPP”) of the construction and operation of major water conservancy projects. In May 2015, the National Development and Reform Commission approved 12 water conservancy projects, allowing the social capital to participate in the construction. With more experiences of the PPP on these areas, social capital can enter more projects of water conservancy, including the water supply. According to the Ministry of Water Resources, there were 27 new water conversancy projects in 2015.