[Author : Wang Haoqiang; Advisor: Jiang Zhijian]
In the first half of the 2024, Shanghai’s GDP reached 2.23 trillion yuan (approximately $307 billion), marking a 4.8% year-on-year growth. The financial leasing sector played a crucial role in Shanghai, especially in helping enterprises survive the post-COVID period as many exhausted their borrowing capacity with traditional banks.
Among the largest players, ICBC Financial Leasing (with assets of $37 billion) and China Development Bank Leasing (assets around $32.4 billion) dominate the market, primarily focusing on large-scale infrastructure. For small and medium-sized enterprises (SMEs), companies like Chailease International Leasing Co. (with assets of $28.6 billion and a net profit of $913 million in 2023), along with Far East Horizon Ltd. (asssets of $36.5 billion) and Bank of Communications Financial Leasing (assets of $44.7 billion), have been pivotal in providing essential financial support.
In the period from 2023 to 2024, Shanghai recorded 535,500 new businesses (up 29.1% from 2022) and $24 billion in foreign investment (up 38.3%). However, despite the influx of enterprises and heightened investment, the manufacturing PMI index has remained below the critical threshold of 50 for several months, indicating a contraction in economic activity,
The data conceals a troubling reality: SMEs, despite their rapid emergence, are facing high failure rates and are continuously failing.
In addition, the crisis in the real estate sector and weak demand, both domestic and external, have further aggravated the economic situation, increasing business failures and underscoring the fragile nature of the apparent growth and the deeper structural issues within ShangHai’s economy.
Based on this information, is the growth of financial firms still true and reliable? The answer is yes, but companies often employ various legal techniques to “adjust” their reported figures.
But how is this achieved? During my summer internship at Chailease International Financing Co., my manager explained a common practice: each year, a portion of the profit is withheld and carried over to the following year. This creates the impression of consistently rising profits, ensuring stakeholders see a positive growth trend, as most foreign investors primarily base their financial market assessments on the financial performance of key companies. However, in recent years, this strategy has faced challenges as fewer profits are left to carry forward, raising concerns about sustaining this growth trend in the future.
During the COVID-19 period, financial leasing firms experienced a paradoxical increase in profits as demand for financing surged, supported by government incentives. However, by 2024, demand plummeted unexpectedly and Many companies declared bankruptcy, leaving behind substantial unpaid debts, leading to the collapse of many firms and leaving the financial sector in a deteriorated state.
“This marks the third wave of financial crisis”remarked my manager, the Director of the Risk Department. Having joined the company in 2006, he has witnessed two previous major waves of financial turmoil, after Global Financial Crisis (2008) and Real Estate and Debt Crisis from 2015
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