The revised Measures for Administration of Financial Leasing Companies (the “Revised Measures”) were promulgated on January 23, 2007 by China Banking Regulatory Commission (“CBRC”), and took effect on March 1, 2007.

The Revised Measures replace the prior regulations governing financial leasing companies issued in 2000 and open up the financial leasing industry to the overseas foreign commercial banks by allowing foreign invested financial leasing companies to operate their business at the same time with local peers in compliance with China’s commitments when gaining the membership to the World Trade Organization ("WTO").

The main changes in the Revised Measures are as follows,

1. Qualification of the investors. The Revised Measures differentiate the definitions between “principal investor” (the one who contributes 50% or more of the registered capital of a financial leasing company) and “ordinary investor”. To be specific, commercial banks, leasing companies, domestic-registered large-scale enterprises mainly engaging in manufacturing and suitable to the financial leasing transactions as well as other institutes approved by CBRC are qualified to be the principal investors to set up a financial leasing company. The qualification of the ordinary investors is subject to the relevant rules governing investment and shareholding in financial institutes promulgated by CBRC, e.g. Measures for Administration of Investment and Shareholding into Domestic-Funded Financial Institutes by Overseas Financial Institutes issued by CBRC in 2003.

2. Minimum Registered Capital. According to the Revised Measures, the capital threshold for financial leasing companies has been lowered – from a minimum registered capital of RMB 500 million or equivalent amount of convertible currency to RMB 100 million or equivalent amount of convertible currency.

3. Adjustment in Scope of Business. In the light of the specialized operational environment of financial leasing companies and in order to diversify financing channels, “absorbing time deposits with the term of one year or longer from shareholders (provided however, time deposits from any banks as shareholders can not be absorbed)” and “transferring the lease payment receivables to commercial banks” have been added into the scope of business permissible for financial leasing companies in the Revised Measures, meanwhile, the items of business scope set forth in the prior rules, “providing the loan as current capital to lessees under leasing transactions”, “securities investment”, “equity investment into financial institutes” and “guarantee” are deleted. The Revised Measures also make a few adjustments on other items of business operated by financial leasing companies.

4. Supervision Indicators. The Revised Measures amend and restate some supervision indicators, for example, the capital adequacy ratio shall not be below 8%; the financing balance for a single lessee shall not exceed 30% of the net capital; the balance for inter-banks borrowing shall not exceed 100% of the net capital in a financial leasing capital, etc.

In addition, the regulatory requirements for supervision regarding related party transactions and sale-and-lease-back specified in the Revised Measures deserve attention. As for related party transactions, financial leasing companies are required to set up rules and regulations to identify, approve and report the related party transactions. As for sale-and-lease-back, a financial leasing business in which the lessee and supplier are identical party, it is required to specifically perform the sale and lease transaction of the qualified leased objects so as to avoid converting the sale-and-lease-back into a loan.