Good Prospect Of Chinese Construction Machinery Financial Leasing Industry

-- In recent years, since enterprises have gradually improved their awareness grades regarding the financial leasing, the functions regarding the financial leasing market have been done and Chinese construction machinery financial leasing sector has entered an special stage of rapid development. Mostly within the background regarding the financial crisis, Chinese government has adopted the policy to positively expand demands regarding the domestic market, which brings opportunities to rapid development regarding the construction machinery financial leasing industry. But on the other hand, compared with mature financial leasing markets in developed countries, Chinese construction machinery financial leasing sector is still within the primary stage of development. Therefore, the market penetration rate is very low, that is only about 8%. According to statics of China Studies and Intelligence, in 2008, the market scale of Chinese construction machinery financial leasing market is only about 4 billion USD.

The statistics reveals that Caterpillar's the largest construction machinery producer within the earth whose sales quantity accounts for over 60% regarding the global sales quantity and over 80% of its sales quantity in developed parts is dealt within the financial leasing. The penetration rate of Chinese domestic construction machinery financial leasing is estimated to increase year by year. It is estimated that in 2010, it shall be 12% and in 2015, it shall reach 25%. The market scale shall reach 20 billion USD. Thus, Chinese construction machinery financial leasing has a huge development space.

For those construction machinery enterprises with huge scales and sufficient cash flows, setting up their own financial leasing businesses means significantly. Mostly within the background regarding the about insurance crisis, bank mortgage amounts can not satisfy the sales demands of barely a little construction machinery enterprises. Like an special sales model, to some degree, the financial leasing creates up for this demand. Just due to the fact that of this, the sales model regarding the financial leasing has gained the attention of manufacturers and becomes the new decision for many huge construction machinery enterprises home and abroad which hope to defend the market beat and the policy impact. When economy is prosperous, bank credit policy is loose, and the financial leasing can fully play its function of corporate finance to promote the flourish development of economy.

When economy is in depression, the financial leasing not only plays a role of a cardiotonic but also plays its role of promotion. It pushes forward investment and consumption, stimulates the economic development and pours new blood into the economic development. The financial leasing is an effective method to simulate investment and overcome the reduction in investment. To some degree, it can stay away from being influenced by the fluctuation of local monetary policies. It plays a positive role within the stable development of enterprises and the sustained and stable growth of state economy.

Moreover, the financial leasing has the function of accelerating depreciation. Subsequent to a contract expires, component of leasing machinery shall be absolutely overhauled within the second-hand market, which objectively promotes the development of remanufacturing and supports the cyclic development regarding the construction machinery industry. For its objects, the financial leasing has a special advantage in promoting the development of moderate and tiny enterprises. In China, the standard of commercial bank loans in recent years is comparatively high, which not only avoides bank risks but also blocks the development demands of moderate and tiny clients. The combination regarding the financial leasing sends moderate or tiny enterprises with moderate and long term loans.

Within the process regarding the financial leasing, the ownership of machinery belongs to a lessor, but the use right and the usufruct belong to a leaseholder. The current Chinese accounting system stipulates that leasing assets shall be incorporated into a leasee company's fixed assets to extract depreciation. For barely a many moderate and tiny construction enterprises, this feature can solve the difficulty of being classified as enterprises with insufficient quality for the lack of sufficient machinery fixed assets. And successful bids of projects shall not be affected. Moreover, a variations of business released by financial leasing businesses can forcefully help moderate and tiny businesses to enter the market competition.

For example, sale leaseback can help construction enterprises purchase the machinery tenders compulsory within the process of bidding. That is to sell a company's machinery at scrap price which does not take component within the construction tender to financial leasing companies. Besides, it raises funds to purchase the machinery compulsory within the tender and rent the machinery which was sold to financial companies. The business was comparatively mature overseas. Enterprises change physicochemical capital into cash capital through sale leaseback.

The business does not affect enterprises to leave on creating use of property and hold the capital fluidity. For construction machinery enterprises, the financial leasing has 5 functions as financing, promotion, investment and assets management. Between them, financing and promotion are the greatest important. Mostly within the current stage regarding the local macro-control and the credit crunch, on one hand, the financial leasing can give parent businesses with financial services by adopting rental instead of selling. It not only avoids the over-reliance on bank credit, but also avoids the unsmooth intermediate links caused by too many stocks, which helps accelerate the flow of enterprise capital.

On the other hand, the financial leasing can enlarge the market of parent companies' products and strengthen the market competitiveness. Meanwhile, as the parent business of a financial leasing company, a manufacture enterprise can occupy partial profits of bank interests. The overall prospect of Chinese construction machinery financial leasing sector is good. But according to statistics of China Studies and Intelligence in July of 2009, the operational status of every enterprise in Chinese construction machinery financial leasing sector is not the same. Some enterprises like Caterpillar, the worldwide giant within the construction machinery industry, take many preferential measures in Chinese construction machinery financial leasing sector in 2009: prior to 2009, their financial leasing business compulsory 5% of deposit; subsequent to entering 2009, the margin-free policy is carried out; the commission charge is canceled; 1-year construction machinery insurance is offered to their clients within the financial leasing business.

Therefore, their business develops prosperously. However, in some companies, the procedures for the financial leasing business are complex and the total leasing costs are higher than bank mortgages subsequent to the total. Thus their financial leasing business in Chinese construction machinery financial leasing sector has declined or even been canceled. The bank mortgage business replaces the market space left by the financial leasing business. 601 86-21-6150-9706 FAX: 86-21-6852-1029 ext.