Measures for the Administration of Lease Financing Companies

Article 2: For the purposes of these Measures, the term “lease financing company” means a non-bank financial institution approved by the China Banking Regulatory Commission (CBRC) that principally engages in the lease financing business.

A lease financing company shall have the words “lease financing” in its name. Without the approval of the CBRC, no entity may use the words “financial leasing” in its name.

Article 3: For the purposes of these Measures, the term “lease financing” means the business activity wherein a lessor, based on the selection or acceptance by the lessee of the leased thing and the supplier thereof, leases in accordance with a contract the leased thing obtained from the supplier to the lessee for the latter's possession and use and for which it charges rent to the lessee.

Article 4: The leased things to which lease financing transactions apply shall be fixed assets, unless otherwise provided by the CBRC.

Article 5: For the purposes of these Measures, the term “sale-leaseback” means a form of lease financing wherein the lessee sells its own thing to the lessor and executes a lease financing contract with the lessor under which it leases back the thing from the lessor. Sale-leaseback is a form of lease financing wherein the lessee and the supplier are the same party.

Article 6: The CBRC and its agencies shall regulate lease financing companies in accordance with the law.

Part Two: Establishment of, changes to, and termination of the business of, an institution

Article 7: To apply to establish a lease financing company, the following conditions shall be satisfied:

(1) having articles of association that comply with the PRC Company Law and CBRC provisions;

(2) having (a) qualified promoter(s);

(3) registered capital being one-time paid-in monetary capital in an amount of not less than Rmb100 million or the equivalent in a freely convertible currency;

(4) having directors and senior management personnel satisfying the conditions for their positions, and lease financing personnel with at least three years of finance work or lease financing work experience accounting for not less than 50% of the total number of lease financing personnel members;

(5) having established effective corporate governance, internal control and risk management systems;

(6) having established an information technology structure compliant with business operation and regulatory requirements, having the necessary, secure and compliant information systems to support business operations and having the technology and measures to ensure sustained operation of the business;

(7) having a place of business, security measures and other facilities suitable for the business operations; and

(8) other prudential conditions as specified by the CBRC.

Article 8: Promoters of lease financing companies include commercial banks with independent legal person status registered inside or outside China, large enterprises registered in China the main business of which is the manufacture of products suitable for lease financing transactions, lease financing companies registered outside China and other promoters recognised by the CBRC.

The phrase “other promoters recognised by the CBRC” means organisations with legal personality in China and overseas financial institutions other than the promoters complying with the provisions of Articles 9 to 11 hereof.

Article 9: A commercial bank with independent legal person status registered inside or outside China serving as a promoter of a lease financing company shall satisfy the following conditions:

(1) satisfying the prudential regulatory requirements of the regulator in its residing country or region;

(2) having a good corporate governance structure and internal control mechanism and a sound risk management system;

(3) having total assets of not less than Rmb80 billion or the equivalent in a freely convertible currency as at the end of the previous year;

(4) having a good financial position and having been profitable consecutively in the most recent two financial years;

(5) having determined a concrete development strategy and clear profit-making model for the proposed lease financing company;

(6) being in compliance with the laws and regulations of its place of registration and not having been involved in a major case or major violation of laws or regulations during the most recent two years;

(7) where an overseas commercial bank is serving as a promoter, the financial regulator of its residing country or region having established a good regulatory cooperation mechanism with the CBRC;

(8) the funds used to acquire the equity interest being its own funds, and entrusted funds, debt funds or other such funds that are not its own may not be used to acquire the equity interest;

(9) giving an undertaking that it will not transfer its equity in the lease financing company, or create a pledge over or establish a trust with its equity in the lease financing company for five years, and specifying the same in the proposed company's articles of association; and

(10) other prudential conditions as specified by the CBRC.

Article 10: A large enterprise registered in China, the main business of which is the manufacture of products suitable for lease financing transactions, serving as a promoter of a lease financing company shall satisfy the following conditions:

(1) having a good corporate governance structure or an effective organisational and management method;

(2) having operating revenue of not less than Rmb5 billion or the equivalent in a freely convertible currency during the previous year;

(3) having a good financial position and having been profitable consecutively in the most recent two financial years;

(4) having net assets of not less than 30% of the total assets as at the end of the previous year;

(5) sales revenue from its main business accounting for at least 80% of all of its operating revenue during the previous year;

(6) having determined a concrete development strategy and clear profit-making model for the proposed lease financing company;

(7) having a good public reputation, integrity record and tax payment record;

(8) being in compliance with state laws and regulations and not having been involved in a major case or major violation of laws or regulations during the most recent two years;

(9) the funds used to acquire the equity interest being its own funds, and entrusted funds, debt funds or other such funds that are not its own may not be used to acquire the equity interest;

(10) giving an undertaking that it will not transfer its equity in the lease financing company, or create a pledge over or establish a trust with its equity in the lease financing company for five years, and specifying the same in the proposed company's articles of association; and

(11) other prudential conditions as specified by the CBRC.

Article 11: A lease financing company with independent legal person status registered outside China serving as a promoter of a lease financing company shall satisfy the following conditions:

(1) having a good corporate governance structure and internal control mechanism and a sound risk management system;

(2) having total assets of not less than Rmb10 billion or the equivalent in a freely convertible currency as at the end of the previous year;

(3) having a good financial position and having been profitable consecutively in the most recent two financial years;

(4) being in compliance with the laws and regulations of its place of registration and not having been involved in a major case or major violation of laws or regulations during the most recent two years;

(5) the economic situation of its residing country or region being good;

(6) the funds used to acquire the equity interest being its own funds, and entrusted funds, debt funds or other such funds that are not its own may not be used to acquire the equity interest;

(7) giving an undertaking that it will not transfer its equity in the lease financing company, or create a pledge over or establish a trust with its equity in the lease financing company for five years, and specifying the same in the proposed company's articles of association; and

(8) other prudential conditions as specified by the CBRC.

Article 12: A lease financing company shall have at least one promoter that satisfies the provisions set forth in Articles 9 to 11, and its capital contribution percentage shall not be less than 30% of the total share capital of the proposed lease financing company.

Article 13: Another organisation with legal personality in China serving as a promoter of a lease financing company shall satisfy the following conditions:

(1) having a good corporate governance structure or an effective organisational and management method;

(2) having a good public reputation, record of integrity and tax payment record;

(3) its operations and management being good and not having a record of a major violation of laws or regulations in its operations during the most recent two years;

(4) having a good financial position and having been profitable consecutively in the most recent two financial years;

(5) the funds used to acquire the equity interest being its own funds, and entrusted funds, debt funds or other such funds that are not its own may not be used to acquire the equity interest;

(6) giving an undertaking that it will not transfer its equity in the lease financing company, or create a pledge over or establish a trust with its equity in the lease financing company for five years, and specifying the same in the proposed company's articles of association; and

(7) other prudential conditions as specified by the CBRC.

Where such another organisation with legal personality in China is not a financial institution, its net assets may not be less than 30% of its total assets as at the end of the previous year; and where it is a financial institution, it shall be in compliance with the requirements of laws, regulations and relevant regulatory provisions for its type of financial institution.

Article 14: Another overseas financial institution serving as a promoter of a lease financing company shall satisfy the following conditions:

(1) satisfying the prudential regulatory requirements of the regulator in its residing country or region;

(2) having a good corporate governance structure and internal control mechanism and a sound risk management system;

(3) having total assets, in principle, of not less than US$1 billion or the equivalent in a freely convertible currency as at the end of the previous year;

(4) having a good financial position and having been profitable consecutively in the most recent two financial years;

(5) the funds used to acquire the equity interest being its own funds, and entrusted funds, debt funds or other such funds that are not its own may not be used to acquire the equity interest;

(6) giving an undertaking that it will not transfer its equity in the lease financing company, or create a pledge over or establish a trust with its equity in the lease financing company for five years, and specifying the same in the proposed company's articles of association;

(7) the financial regulator of its residing country or region having established a good regulatory cooperation mechanism with the CBRC;

(8) having effective anti-money laundering measures in place;

(9) the economic situation of its residing country or region being good; and

(10) other prudential conditions as specified by the CBRC.

Article 15: An enterprise may not serve as a promoter of a lease financing company if:

(1) its corporate governance structure and mechanisms contain obvious defects;

(2) it has many affiliates, the equity relationships among which are complex and opaque, and affiliated transactions are frequent and irregular;

(3) its core main business is not prominent and its scope of business involves an excessive number of industries;

(4) its cash flow is volatile and relatively prone to being affected by the economic climate;

(5) its asset to liability ratio or financial leverage ratio is greater than the average level in the industry; or

(6) another circumstance that could have material adverse impact on a lease financing company applies.

Article 16: A promoter of lease financing company shall specify in the lease financing company's articles of association that in the event that the lease financing company experiences payment difficulties, it will provide liquidity support; and in the event that business losses erode its capital, it will make up the difference in a timely manner.

Article 17: Subject to the approval of the CBRC, a lease financing company may, as required for the development of its business, establish branches and subsidiaries. The specific conditions for the establishment of branches and subsidiaries will be formulated separately by the CBRC.

Article 18: The directors and senior management personnel of lease financing companies are subject to a system for the approval of their qualifications for their positions.

Article 19: If a lease financing company is to undergo any of the following changes, the approval of the CBRC or its agency shall be required:

(1) change in the company name;

(2) change in organisational form;

(3) revision of scope of business;

(4) change in registered capital;

(5) change in equity or modification in the equity structure;

(6) amendment of the company's articles of association;

(7) change in the company's domicile or place of business;

(8) change in directors or senior management personnel;

(9) merger or division; or

(10) another change as specified by the CBRC.

Article 20: If there is to be a change in the equity of a lease financing company or its equity structure is to be modified, the investor intending to invest and acquire an equity interest shall satisfy the conditions for a promoter newly establishing a lease financing company set forth in Articles 8 to 16 hereof.

Article 21: With the approval of the CBRC, a lease financing company may be dissolved if:

(1) the term of operations specified in its articles of association expires or another reason for dissolution as specified in its articles of association arises;

(2) the shareholders decide or the shareholders' (general) meeting resolves to dissolve it;

(3) it needs to be dissolved due to a merger or division;

(4) it has its business licence revoked in accordance with the law, is ordered to close down or is closed down in accordance with the law; or

(5) another statutory reason.

Article 22: With the approval of the CBRC, a lease financing company may file for bankruptcy with a court if:

(1) it is insolvent and it voluntarily files for bankruptcy or is required to file for bankruptcy by creditors; or

(2) it is being liquidated after being dissolved or closed down, the liquidation committee discovers that the property is insufficient to discharge its debts and it is required to file for bankruptcy.

Article 23: When a lease financing company is insolvent and its assets are insufficient to discharge all of its debts or it clearly lacks the capacity to discharge the same, the CBRC may file a petition with the people's court for the restructuring or the bankruptcy and liquidation of such company.

Article 24: If the business of a lease financing company is terminated due to the company being dissolved, being closed down in accordance with the law or being declared bankrupt, the liquidation thereof shall be handled in accordance with relevant state laws and regulations.

Article 25: The administrative permission procedure for the establishment of, changes in and termination of the business of a lease financing company and approval of the qualifications of directors and senior management personnel for their positions shall be handled in accordance with relevant CBRC provisions.

Part Three: Scope of business

Article 26: Subject to the approval of the CBRC, a lease financing company may engage in part or all of the following businesses in renminbi and foreign currencies:

(1) lease financing;

(2) transferring or acquiring leasing financing assets;

(3) fixed-return securities investment;

(4) receiving leasing deposits from lessees;

(5) absorbing term deposits of three months or more from non-bank shareholders;

(6) interbank lending;

(7) borrowing from financial institutions;

(8) borrowing from abroad;

(9) sale and disposal of leased products; and

(10) economic consulting.

Article 27: Subject to the approval of the CBRC, a qualified lease financing company with a good business position may engage in part or all of the following businesses in renminbi and foreign currencies:

(1) offering of bonds;

(2) establishing project companies in domestic bonded regions to engage in lease financing business;

(3) asset securitisation;

(4) providing security for the financing from third parties of its subsidiaries and project companies; and

(5) other business as approved by the CBRC.

The specific conditions and procedures for a lease financing company to engage in the businesses set forth in the preceding paragraph shall be handled in accordance with relevant provisions.

Article 28: If the business operations of a lease financing company involve foreign exchange control matters, it shall comply with relevant state provisions on foreign exchange control.

Part Four: Operating rules

Article 29: A lease financing company shall establish an organisational structure consisting of main bodies such as shareholders or a shareholders' (general) meeting, board of directors, supervisors or supervisory board and senior management, specify the division of duties and ensure that they each operate independently and effectively check and balance each other so as to give rise to a scientific and effective decision-making, incentive and restraint mechanism.

Article 30: A lease financing company shall, in accordance with the principles of comprehensiveness, prudence, effectiveness and independence, establish and enhance internal control systems, and guard against, control and resolve risks so as to ensure its safe and stable operation.

Article 31: A lease financing company shall, in line with its organisational structure, business size and degree of complexity, establish a comprehensive risk management system, effectively identify, quantify, monitor and control credit risks, liquidity risks, market risks, operational risks and other types of risks, and additionally identify and manage in a timely manner specific risks relating to the lease financing business.

Article 32: A lease financing company shall lawfully secure the ownership of the things it leases out.

Article 33: If a thing leased out by a lease financing company consists of property that state laws and regulations require the transfer of the ownership of which to be registered with the registration department, the lease financing company shall carry out the relevant registration. If a leased thing is not property that requires registration, the lease financing company shall take effective measures to ensure its lawful rights and interests therein.

Article 34: The leased thing of a sale-leaseback must be genuinely owned by the lessee and it must have the right to dispose of the same. A lease financing company may not accept, as the leased thing of a sale-leaseback, property that has been mortgaged, over which there is a dispute as to title, that has been placed under seal or seized by the judicial authorities, or the ownership of which is defective.

Article 35: A lease financing company shall, subject to the execution of a lease financing contract or specification of lease financing business intent, buy the thing to be leased as required by the lessee. Under special circumstances where the thing to be leased needs to be purchased in advance, the lease financing company shall maintain consistency with its existing business sector or business plan, and the same shall be in keeping with its risk management capacity and its specialised business level.

Article 36: A lease financing company shall establish and enhance a system for the valuation and pricing of leased things and set the rent level based on the value of the leased thing, other costs, reasonable profit, etc.

The price paid by a lease financing company to purchase the leased thing of a sale-leaseback shall have as reference a reasonable pricing basis that does not violate accounting standards. The purchase of a thing of low value at a high price is prohibited.

Article 37: A lease financing company shall attach importance to the risk mitigation function of leased things, closely monitor the risk coverage level of the value of the leased thing on the lease financing claim, and formulate effective risk response measures.

Article 38: A lease financing company shall strengthen its management of the valuation of the unsecured residual value of leased things, regularly assess the unsecured residual value and carry out an impairment test. When signs of the impairment of the unsecured residual value of a leased thing appear, provisions for impairment shall be made in accordance with the requirements of accounting standards.

Article 39: A lease financing company shall strengthen its management of the limits on the risk of unsecured residual value, and set a risk limit on lease financing assets the unsecured residual value of which is relatively high in line with the size of its business, the nature of its business, the degree of complexity and market conditions.

Article 40: A lease financing company shall strengthen its management in respect of the risk of the return of the leased thing upon expiration of the lease term or recovery thereof due to a breach of contract by the lessee and establish a sound disposal system and procedure for leased things so as to reduce the risk during the leased thing holding period.

Article 41: A lease financing company shall truthfully reflect the actual and risk situation of its transfer and acquisition of lease financing assets in strict accordance with accounting standards and other such relevant provisions.

Article 42: A lease financing company shall establish and enhance a concentration risk management system so as to effectively guard against and diversify operating risks.

Article 43: A lease financing company shall establish a strict affiliated transaction management system and its affiliated transactions shall be carried out at arm's length on conditions no more favourable than for similar transactions with non-affiliated parties.

Article 44: The regulatory requirements in respect of affiliated transactions hereof shall not apply to transactions between a lease financing company and the subsidiaries and project companies established by it.

Article 45: Material affiliated transactions of a lease financing company shall be subject to the approval of the board of directors.

The term “material affiliated transaction” means a single transaction between a lease financing company and an affiliate thereof the amount of which is equivalent to at least 5% of the net capital of the lease financing company or a transaction between a lease financing company and an affiliate thereof after which the transaction balance between the lease financing company and such affiliated party amounts to at least 10% of the lease financing company's net capital.

Article 46: The investment of a lease financing company in fixed-return securities may not exceed 20% of its net capital.

Article 47: A lease financing company that wishes to launch asset securitisation business may refer to relevant provisions on credit asset securitisation.

Part Five: Regulation

Article 48: A lease financing company shall comply with the following provisions on regulatory metrics:

(1) capital adequacy ratio: a lease financing company's net capital to risk-weighted asset ratio may not be less than the CBRC's minimum regulatory requirements;

(2) single customer financing concentration: a lease financing company's balance of all lease financing with a single lessee may not exceed 30% of its net capital;

(3) single group customer financing concentration: a lease financing company's balance of all lease financing with a single group may not exceed 50% of its net capital;

(4) degree of affiliation with a single customer: a lease financing company's balance of all lease financing with an affiliated party may not exceed 30% of its net capital;

(5) entire degree of affiliation: a lease financing company's balance of all lease financing with all of its affiliated parties may not exceed 50% of its net capital;

(6) degree of affiliation with a single shareholder: the financing balance of a single shareholder and all of its affiliated parties may not exceed the shareholder's contribution to the lease financing company's capital while also satisfying the provision on the degree of affiliation of a single customer hereof; and

(7) interbank lending ratio: the balance of a lease financing company's interbank borrowing may not exceed 100% of its net capital

Subject to the approval of the CBRC, the single customer financing concentration and single group customer financing concentration requirements in specific industries may be appropriately adjusted.

The CBRC may, depending on regulatory requirements, appropriately adjust the foregoing indicators.

Article 49: A lease financing company shall establish a capital management system in accordance with relevant CBRC provisions, rationally assess its capital adequacy position and establish a prudent and compliant capital replenishment and restraint mechanism.

Article 50: A lease financing company shall establish an asset quality classification system in accordance with regulatory provisions.

Article 51: A lease financing company shall establish a reserve fund system in accordance with relevant provisions, make provisions in a timely manner for asset impairment and loss on the basis of an accurate categorisation and strengthen its risk resistance capacity. Where insufficient provisions have been made, profit distribution may not be carried out.

Article 52: A lease financing company shall establish and enhance an internal audit system, and review, assess and improve its business activities, risk position, internal controls and corporate governance effect so as to promote lawful operations and stable development.

Article 53: A lease financing company shall implement uniform state accounting standards and systems, and truthfully record and comprehensively reflect its financial position and business results, etc.

Article 54: A lease financing company shall, in accordance with regulations, submit accounting statements and other statements requested by the CBRC and its agency, and shall be liable for the truthfulness, accuracy and completeness of the statements and documentation it submits.

Article 55: A lease financing company shall establish a periodic external audit system and, within four months after the end of each financial year, submit an annual audit report signed in confirmation by its legal representative to the CBRC or its agency.

Article 56: If a lease financing company violates relevant provisions hereof, the CBRC and its agency shall, in accordance with the law, order it to rectify the matter within a specified period of time. If it fails to rectify the matter within the specified period of time, or if the violation seriously threatens its stable operation or seriously harms the lawful rights and interests of customers, the CBRC and its agency may, depending on the circumstances, take regulatory measures such as ordering it to suspend operations and restricting shareholder rights in accordance with laws and regulations such as the PRC Banking Regulation Law.

Article 57: If a credit crisis has occurred or could occur in a lease financing company, seriously affecting the lawful rights and interests of customers, the CBRC shall, in accordance with the law, entrust the management of the lease financing company to a third party or urge it to undergo restructuring. If the issue is serious, the CBRC shall have the right to close it down.

Article 58: The CBRC and its agencies shall impose penalties for violations of relevant provisions hereof in accordance with laws and regulations such as the PRC Banking Regulation Law. If a lease financing company objects to a penalty decision rendered by the CBRC and its agency, it may, in accordance with the law, apply for administrative review or institute an administrative action with the people's court.

Part Six: Supplementary provisions

Article 59: Unless otherwise expressly stated, the financial metric requirements herein are all on a consolidated basis.

Article 60: The CBRC is in charge of interpreting these Measures.

Article 61: These Measures shall be effective as of date of promulgation. The former Measures for the Administration of Lease Financing Companies (Order of the CBRC [2007] No.1) shall be repealed simultaneously.