An employee of XCMG Construction Machinery checks the company's 500-ton auto crane. Machinery companies have realized the huge potential in the the financial leasing market.[China Daily]

China's machinery makers are developing their interests in financial leasing as part of an effort to increase equipment sales and expand their presence in overseas markets.

They believe the cash crunch facing small enterprises presents a huge market potential in a sector which businesses hire equipment rather than buy it.

Zoomlion Heavy Industry Science & Technology Development Co, China's leading player in the construction machinery sector, is using a financial leasing service to expand its presence in the European market and increase sales.

The company joined the European Rental Association last month in a bid to enter Europe's financial leasing market. It also set up financial leasing firms last year in Australia, Russia, Italy and the United States, as part of efforts to increase sales in these regions.

"Financial leasing is an effective tool to increase equipment sales and is widely used among foreign machinery makers," said Guo Qiang, an industry analyst at First Capital Securities. "Zoomlion is adjusting to international market competition."

Zoomlion Heavy Industry expects revenue generated from financial leasing services to have exceeded 5 billion yuan last year, representing 20 percent of its entire sales in 2009.

"Sales from financial leasing services are likely to take up 50 percent of our business in the years to come," said Zhan Chunxin, chairman of Zoomlion Heavy Industry.

Financial leasing, as an international investment tool, could help us expand overseas markets, Zhan said.

The central government's stimulus package in the construction sector created huge demand for construction machinery but the majority of small buyers find it difficult to pay in one installment, said Ping Jingwei, an industry analyst with Shanghai Securities.

Financial leasing allows small buyers to pay debts like a mortgage, Ping said.

XCMG Construction Machinery, which integrated the financial tool into equipment selling in 2007, saw revenue from the sector surge to 4 billion yuan last year.

The company said financial leasing services would be the principal channel through which to sell equipment in the future. the firm expects the service to account for 60 to 70 percent of sales over the next two to three years.

Meanwhile, four machinery makers, including Weichai Power Co, one of China's largest manufacturers of diesel engines, have jointly injected 740 million yuan into a financial leasing firm to cater to demand from leasees.

Upon completion of the asset injection, the financial leasing firm, which had an original registered capital of 180 million yuan, can now increase the capital scale of its financial leasing service to 9.2 billion yuan.

The move came as machinery makers realized the huge market potential in financial leasing because the majority of lessees are small enterprises that are more easily exposed to cash problems.

China's machinery financial leasing market has grown 2.5 times in terms of value since 2004, according to the latest investment report on construction machinery released by China Investment Consulting.

The market generated 280 billion yuan in 2009, according to Hu Guocai, deputy director of China Association of Enterprises with Foreign Investment, and is expected to exceed 350 billion yuan this year, market analysts estimate.

Despite all the developments, the financial leasing market is still in its infancy in China.

Caterpillar, the largest machinery maker in the world, makes 60 percent of its sales from financial leasing services worldwide and 80 percent in developed regions. Fifty percent of its sales in China come from financial leasing.

Financial leasing, however, only accounts for 20 percent of construction machinery sales in China. They made up a 35 percent share in the global construction machinery market, indicating huge market potential, according to the research note by China Investment Consulting.