China is going to completely open its leasing industry to foreign investors in the near future, said the Ministry of Commerce in Beijing. 

The ministry has recently published a new regulation for foreign investment in the leasing industry, amending the previous provisional regulation implemented in 2001. The regulation will come into force on a trial basis on March 5.

The fresh moves were made to meet the timetable China pledged to the World Trade Organization (WTO).

The regulation means foreign investors will be allowed to deal with leasing and financial leasing in terms of wholly foreign-owned companies.

Meanwhile, the regulation has lowered the capital threshold for foreign-funded leasing companies.

In line with China's commitments to the WTO, the minimum registered capital of a foreign financial leasing company will be reduced from US$20 million to US$10 million.

Aside from this, in order to keep control of this sector, the ministry requires all financing leasing firms to submit business reports before March 31 each year.

The new regulation is expected to herald a new foreign leasing companies investing spree in China.

According to the ministry, a number of foreign enterprises, including banks, specialized leasing companies and manufacturing enterprises, have applied to establish wholly-owned leasing companies in China.

In fact, two multinational companies, GE Capital and Caterpillar, set up their wholly-owned firms in China last year as pilots in the leasing sector.

So far, China has 39 foreign-funded leasing companies, with their volume of trade totaling nearly US$1.6 billion in 2004.

In the new investing environment, the number of companies is expected to reach 45 this year.

Insiders also believe foreign investors bring new business methods to China, enhancing the entire industry.

However, experts warn that China's leasing industry is still weak, so domestic leasing companies need more help than their foreign rivals.

Complicated management and high taxation blocked the development of domestic leasing companies, said Xia Bin, director of the Financial Research Institute of the Development Research Center of the State Council.

Currently, domestic leasing companies have to bear an annual income tax of 25 percent while the tax rate on foreign firms is only 13 percent.

Qu Yankai, an official at China's Association of Enterprises with Foreign Investment, echoed Xia by saying that the government should particularly strengthen their support of domestic financial leasing companies.

(China Daily February 19, 2005)