Knowledge Centre


China – Asset and Auto Finance Country Survey 2013

China

08 Jan 2013

China is the second-largest economy in the world after the US, based on purchasing power parity, a position it attained in 2010; in that year China also became the world’s largest exporter.

The size of China's economy in 2020 will be close to that of the US in 2012 and China's gross domestic product is expected to reach RMB100 trillion in 2020, equivalent to $16-20tn, according to an official Chinese forecast quoted at a press conference by the Office of the Central Leading Group on Finance and Economic Affairs at the end of November 2012.

The Chinese government's 12th Five-Year Plan, adopted in March 2011, put an emphasis on the need to maintain economic reforms and to increase domestic consumption in order to make the economy less dependent on exports. These are challenges that will take time, and the recent handover of power to a new generation of leaders will inevitably lead to a delay in policy development and implementation.

Meanwhile, as part of the effort to open up the leasing industry in China, the Ministry of Commerce (MOFCOM) moved foreign-invested finance leasing companies from the ‘restricted’ to the ‘permitted’ category – meaning no particular restrictions rather than being subject to higher levels of scrutiny and stricter administrative requirements.

However, although reforms to the financial system are progressing, continuing the move away from central direction is imperative in maintaining incentives for foreign investment. As stated by the World Bank, “The state’s involvement in financial markets and institutions – through ownership of banks and state-owned enterprises, management of interest rates, setting of priorities for the financial system, and as an implicit guarantor – is resulting in moral hazard, weak risk management in banks, and a build-up of contingent risk and liabilities.” (Source: World Bank, China: Financial Sector Assessment, November 2011.)

There are many challenges facing the asset finance and leasing industry in China – such as access to funding for small and medium-sized enterprises (SMEs), access to reliable accounts for lessors, better regulation particularly regarding the rising rate of default, new tax legislation and corruption.

This Country Survey aims to provide a balanced view of the equipment finance and auto leasing market in mainland China i.e. the People’s Republic of China; although Hong Kong is closely linked, and is sometimes included with the PRC, it operates on many separate levels. Therefore Hong Kong and similarly Taiwan are not included). The survey will provide a summary of leasing activity; provide comment from key industry figures on the market, its outlook and the challenges and opportunities that face it; examine the building blocks of a successful leasing operation in China; review the latest developments in taxation and how these reforms affect leasing; and give a breakdown of the different types of accounting treatments of leases in China.