Knocking Down (Great) Walls: Identifying Factors for Success in the Chinese Equipment Leasing Market
Executive Summary
Lessors seeking expansion opportunities must consider the Chinese market, given its scope and transition to a market-based economy. This is particularly true for larger lessors with ambitious growth goals. Even so, much of the infrastructure needed for a viable equipment leasing industry in China is not yet in place. As a result, it is critical that lessors be armed with adequate and accurate information regarding the opportunities and pitfalls in this market.
Many of the risks lessors face in China are the same as those in the US, except they are compounded by time and distance. There also are uniquely Chinese challenges that go beyond differing tax and accounting rules. For example, the legal rules have basic similarities, but the lack of adequate leasing law makes collecting past-due rents and repossessing equipment in China very difficult. Other major differences between the US and China include language, culture, and the number and nature of business regulations.
Most international lessors with operations in China today have Chinese partners, due, in part, to the fact that a local partner was required to obtain a leasing license. With the recent availability of the Wholly Foreign-owned Enterprise (WFOE) option and the new leasing law being considered, however, many large lessors are seeking to establish operations on their own. Smaller lessors, on the other hand, may continue to seek out partners, primarily due to the regulatory capital requirements.
Investing in the Chinese leasing market can be a sound decision for lessors whose customers are asking for leases there and who can effectively manage the risks. This investment, however, will require a significant and ongoing commitment. A sound exit strategy also should be a part of the investment plan, keeping in mind that China is just as aggressive about keeping foreign equity investment from leaving the country as it is about bringing it in.
The key to success is to carefully consider the unique risks inherent in China. Although the analysis may not be much different than one performs in entering any new foreign market, it is important to remember that the differences in culture, economy, time, and distance magnify the risks, concerns, and operating issues.
Table of Contents:
-
Introduction
- 11 Establishing leasing operations outside the US
- 12 Key differences
- 13 Regulatory guidance
- 13 Risk management
- 14 Equipment leasing in China
- 15 Market size
- 15 Lease taxation
- 19 Lease accounting
- 20 Leasing associations
- 22 Current developments
- 26 Approvals and time required
- 27 Partnership considerations
- 29 Capital requirements
- 29 Funding and currency considerations
- 30 Staffing
- 30 Systems and service providers
- 31 Geographical considerations
- 34 Market entry risk
- 36 Operational risk
- 41 Financial risk
- 43 Exit strategy risk
- 45 Case Studies
- 65 Conclusion
- 68 Appendix One - Current Chinese Lessors
- 69 Appendix Two - Leasing Company Regulations
- 72 Appendix Three - Paperwork Process for Repatriating Profits