The third of a series of articles on China and the Asian market in support of the China Leasing Summit to be held in Beijing on 20-21 June 2013
Japan was the main player in the emerging Chinese leasing market in the early and mid-1980s. However most entrants lost money and by the mid-1990s had withdrawn from the market. Since then Japanese companies have been very cautious about re-entering the market.
The problems seem to have resulted more from cultural misunderstandings than bad judgement.
Leasing companies then seeking permission to invest in China, and informing the Central Bank about the types of companies they were prepared to do business with, in the main received what they interpreted as approval of both the activity and the potential customer base. However this wasn’t the case – what was being given was an acknowledgement and understanding of what was intended and permission to trade in the way the Japanese leasing companies had described.
Their principal target companies were the state-controlled companies, which in the event were not going to be supported by the state, resulting in poor credits and considerable bad debts.
The question now remains as to whether Japanese leasing companies will re-enter what is now a dynamic market.
Trading relations between the two countries is currently under the microscope, but China will be a difficult market to ignore.
The speed with which the Chinese leasing industry grew in 2012 was exceptional. Turnover was CNY1.55trn (€194bn), increasing by approximately CNY620bn, compared with CNY930bn at the end of 2011, a growth rate of 66.7%.
By of the end of 2012, the number of domestic leasing companies was approaching 560, almost 300 more than the 2011 number.
The number of foreign-funded leasing companies reached 460, an increase of 250 compared with 2011, a growth rate in excess of 100%.
The 2012 industry capital adequacy ratio was reported as 12.2% and, over the same period, the registered capital of foreign lessors was reported at CNY90.4bn, showing growth of 76%.
From a competitive landscape perspective there are, as in most countries, a few companies that dominate the market in respect of market share. In China there are 20 financial leasing companies which account for more that 40% of the total. During 2012 a small number of existing listed companies from other industries successively entered the leasing market adding to the competitive environment. We can expect this trend to continue.
Looking at the China market in world terms it is estimated that the current leasing market penetration rate is only about 5% compared with around 20% and 30% in the European and US markets. We can see therefore that as the world’s second-largest economy China’s leasing market contains huge opportunities for growth. Expectations for the leasing industry in China are that it will exceed 10% by 2020.
All this growth begs the question: "Will the rest of the world be keen to invest in the Chinese leasing industry?" The most successful of the investors so far have been the manufacturers’ captive leasing companies and this is likely to continue.
However, we need to look at other possibilities and my thoughts turn back in the direction of Japan – if at first you don’t succeed, try, try again.
– Derek Soper is chairman of IAA-Advisory
Other blogs in the series:
See also – Scope for growth in China