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China to reform financial leasing market

The China Banking and Insurance Regulatory Commission issued draft laws Jan. 8 to tackle the country's troubled financial leasing market, where just 2,985 of 10,900 registered entities are in operation.

The rest of the sector, which holds assets totaling 4.677 trillion yuan, are either shell companies or held in limbo, the commission said in a same-day press conference. Under the new rules, the companies will be given two years to meet fresh regulatory requirements, or risk closure. All registrations will be suspended in the meantime.

The draft rules also order financial lessors to, among other things, maintain total risk assets to at most eight times of net assets and curb business to a single and group lessee to at most 30% and 50% of net assets, respectively. Further, any fixed income securities investment business carried out by financial leasing companies must not exceed 20% of net assets.

There is an urgent need to refocus the sector on its main business while strengthening regulatory oversight, the regulator said. It added that financial lessors play a major role in providing financing for micro-, small and medium-sized enterprises via channels such as direct leasing, subleasing and leaseback.

The announcement also comes after China's central bank said it would strengthen regulations for financial institutions and step up support for troubled banks and small businesses in 2020 in a bid to combat financial risks.

As of Jan. 8, US$1 was equivalent to 6.95 Chinese yuan.