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China is now allowing both domestic and foreign commercial banks to establish financial leasing companies in the country, under a rule released by its regulator yesterday.

The China Banking Regulatory Commission (CBRC) rule will permit locally as well as overseas-incorporated commercial banks to directly set up financial leasing companies in China from March 1.

This is the first such move by the regulator since 1997 when commercial banks were required to withdraw from the sector.

However, it is stipulated that a bank can invest in financial leasing companies only if its capital adequacy ratio stands at over 8 percent, has total assets of over 80 billion yuan per annum, and has been registering profits for two consecutive fiscal years.

The rule also allows large-scale leasing companies, manufacturing enterprises and other financial institutions to invest in the business pending CBRC approval.

The minimum registered capital for a financial leasing company is also lowered to 100 million yuan down from the previous 500 million yuan.

"The CBRC rule is aimed at rectifying the 12 financial leasing companies and canceling the franchise rights of financing and inter-bank borrowing and lending to make them return to the main business and financing and leasing sector," said an anonymous analyst with the Financial Leasing Professional Committee at the Society of Finance.

China currently has 12 licensed financial leasing companies but the new rule may well catapult commercial banks to the industry's new preferred choice for investors.

"There will be a big reshuffle among the financial leasing companies, and commercial banks will become almost the main investors in the industry," the analyst said.

The rule is also seen as the implementation of one of China's banking commitments to the World Trade Organization.

China opened up its banking industry at the end of 2006. Foreign-funded banks have been able to deal in the renminbi retail business across the country since December 11.

"The old financial leasing rule was no longer in line with the opening banking industry. The new circumstances prompted the CBRC to revise the rule and it got primary approval from the State Council," the regulator said in a statement on its website.

The CBRC yesterday further released its revised rule on China's trust corporations, which aim to stimulate the industry and better protect investors' interests.

(China Daily February 2, 2007)