The most recent trend in Taiwan's financial sector is setting up leasing companies in China, with the Financial Supervisory Commission having approved six such applications during the first six months this year alone.
According to the 2010 World Leasing Yearbook, the value of leasing deals in China has grown from 8 billion Chinese yuan (US$1.24 billion) in 2000 to 700 billion yuan in 2010. The figure is expected to hit 1 trillion yuan this year.
While Industrial Bank of Taiwan and financial holding companies including SinoPac, Taishin, First, Shin Kong and China Development have been approved to operate leasing businesses in China, Taiwan-based Chailease Finance Co.'s Chinese subsidiary has seen rapidly growing profits.
Chailease International Finance Corp., which was set up in 2005 in Shanghai, has reported after-tax net profit growth from NT$150 million (US$5.19 million) in 2008 to NT$240 million in 2009 and NT$410 million in 2010.
Eddie Yu-chang Wang, executive vice president of China Development, said the business opportunity in China's leasing market comes from small and medium-sized enterprises' (SMEs) lack of access to credit in the country.
For SMEs, especially startups, the financial leasing services provided by leasing companies help satisfy their demand for equipment when they are short of funds.
Normally, such a service includes an option for the lessee to acquire ownership of the equipment after a certain period of time.
As the current interest rates of the financial leasing stands at 12 percent-16 percent, the business has a margin of 4 percent to 6 percent for leasing companies, which is much higher than the 1 percent in Taiwan's financial sector.
However, leasing companies also bear higher risks in China, as the country's finance and credit infrastructure still needs improvement.
To lower the risks, Chailease chose to work with Shanghai-based First Sino Bank, which was set up by Taiwanese investors, for the bank's credit-check system. Other Taiwanese leasing companies are expected to form similar partnerships with Chinese banks.
Besides working with local banks, Wang added that leasing companies should improve their understanding of the various sectors, since they will eventually be targeting Chinese customers.
For Taiwanese financial services, a leasing company, despite the risks, provides a different approach for tapping into the China market, even though they are still not allowed to invest in Chinese banks. (Business Today 759)(translated by Kay Liu)