}
FREQUENCY OF LEASING
7
a) The case for leasing from the Chinese point of view is thus far from clear. Its presentational and short term financial advantages have to be weighed against its greater complexity and probable greater long term costs. But while leasing is perhaps unlikely to become a major vehicle for financing British exports to China, it will have a part to play. The Chinese are known to have entered into leasing contracts with overseas lessors but none so far as is known have been made with the UK.
b)
A recent development suggests that the Chinese may be moving towards leasing as a method of acquiring plant. A joint venture between Orient Leasing Co of Japan, China International Trust and Investment Corporation and Beijing Machinery & Electric Equipment Corporation is proposed. The venture, a leasing company to be called China Orient Leasing Co will operate from Beijing and is to have an initial capital of US$3 million of which the Japanese will provide 50%, China International Trust 20% and Beijing Machinery 30%. Formal approval of the Chinese Foreign Investment Control Commission is awaited and the new company hopes to start operations in early 1981. The company is to engage in leasing, releasing, rental of machinery, equipment and transport facilities and sales of leased assets from Japan and elsewhere. The agreement is to run for 20 years and the Japanese partner is reported as expecting leasing contracts worth several hundred million dollars within the first 5 years.
TYPES OF LEASE
8
By reason of the variety of factors that will affect leases to China (amount, duration, currency etc) every lease is likely to be slightly different in its particular details. However, all will fall into one or two main categories, as either a "financial lease", which is virtually an alternative to a supply contract, or as an "operational lease", which is a hiring contract, with the property retained by the lessor at the end of the hire period.
NEGOTIATION OF A LEASING CONTRACT
9
The Chinese lessee will normally negotiate the contract price and technical aspects of the transaction (specification, warranties etc) directly with the UK supplier, whose responsibility for these would remain.
10 Details of the leasing contract would be negotiated between the Chinese lessee and the lessor who would then purchase the equipment from the supplier in order to perform the leasing contract.
11
It is
Negotiations may of course be more complicated than the above suggests. likely that the negotiations with the supplier and the lessor would take place at the same time and in the event that a counter trade arrangement was required by the Chinese (see 12 below) negotiations with the trader would also be involved. All parties will of course need to work in close collaboration.
LEASING PAYMENTS CASH AND COUNTER TRADE
12 While lease payments are normally simple cash payments spread equally over the term of the lease, the Chinese may well wish to arrange for payments to be made in kind under a Counter Trade Agreement. In such circumstances it would be necessary to involve a trader who would be willing to receive the goods and make the leasing pay- ments on behalf of the lessee. the goods to reimburse him for trader could also be the lessor. towards counter trade contracts.
The trader would rely on the proceeds of the sale of the payments made to the lessor. In many cases the
Lessors should however be aware of ECGD's attitude
(Annex A - paragraph 5.)
13 Companies are advised to approach their banks and appropriate counter trade
1
No comments yet.
Private notes are available after approval.