The Ministry of Foreign Trade and Economic Cooperation (Moftec) recently issued Interim Measures regarding Examination and Approval of Foreign Invested Leasing Companies (FILCs). Taking effect as of September 1 2001, the Measures contain a framework for foreign investors to form equity or cooperative sino-foreign JV leasing companies.
For FILCs wishing to pursue financial leasing:
- the foreign investor should at least have $400 million, and the Chinese party at least Rmb400 million, in total assets;
- the foreign investor should have at least five years' financial leasing experience;
- the JV's registered capital should not be less than $20 million of which at least 20% must be contributed by the Chinese party; and
- the JV term should not exceed 30 years.
For FILCs wishing to pursue other leasing (such as operating lease) business:
- the foreign investor should at least have $50 million total assets;
- the Chinese party's total assets should be no less than Rmb100 million;
- the foreign investor should have at least three years' experience in the leasing business;
- the JV's registered capital should not be less than $5 million of which the Chinese party should hold at least 20%; and
- the JV term should not exceed 20 years.
While Moftec has interpretative authority over the Measures, the business scope of FILCs must be in keeping with China's industrial policies.
The Measures state the business scope for FILCs in financial leasing as including:
- Renminbi/foreign currency direct leasing, subleasing, leasebacks and leveraged leasing, relating to construction machinery, scientific and medical apparatus, aircraft, vessels and automobiles and other items;
- purchasing equipment from abroad for leasing within China and disposing of residual equipment; and
- acting as consultant to and as guarantor of leasing transactions.
For FILCs carrying on other leasing business, their activities are restricted to non-financial leasing matters.
Noteworthy under the Measures is a provision that the risk (including the guarantee liabilities) taken on by FILCs carrying on financial leasing should not exceed 10 times its total assets.