Authorities are making efforts to create favourable conditions for the development of the aero-leasing industry in China, officials said.

The new draft of the Financial Leasing Law is ready for a second round of consultation, said Guo Shuyan, vice-chairman of the Financial & Economic Committee under the National People's Congress.

The draft follows international guidelines and "promotes banks investing in the industry," said Guo, leader of the work group on the law, at the China Aero-leasing Summit 2006 in Beijing yesterday.

More than 60 per cent of China's civil aviation fleet, which reached 940 airplanes by the end of August, were acquired through financial leasing.

In the past, China forbade bank capital in the business, because the financial leasing industry shoulders much higher capital risks than any other industry.

However, the old rule has hindered the industry's development in China, where the annual financial leasing volume is less than 1 per cent that of the United States'.

Almost all leased airplanes in China's civil aviation sector are leased from foreign financial leasing companies.

As China's civil aviation sector is expanding fast, the aero-leasing market is expected to be worth at least US$108 billion by the year 2024, by which time China is estimated to add 2,300 more airplanes.

However, this market seems to be out of reach of the 12 domestic financial leasing companies.

"Foreign companies in the field either have a banking background that enables them to get capital at a low cost, or an aircraft manufacturing background that enables them to acquire airplanes at a lower cost," said Wang Yixin, a senior manager with the Industrial & Commercial Bank of China.

With no background in either fields, "domestic financial leasing companies are now confronted with the same problem how to acquire capital at a low cost," said Wang Renfeng, deputy general manager of Shenzhen Financial Leasing Company.

Wu Xiao, deputy director general of the transportation department of the National Development and Reform Commission, suggested setting up large financial leasing companies supported by financial institutions.

As a move to support the domestic financial leasing industry, "the civil aviation authorities are drafting a regulation on managing the purchase and acquisition of aircraft," he said at the summit, without revealing any more details.

Source: China Daily