Centralisation in China
An interview with Lisa Robins of J.P. Morgan
We are delighted to return to our new series of interviews with key individuals in the banking sector. This month, we are pleased to introduce Lisa Robins, Managing Director, J.P. Morgan Treasury Services China Executive and Beijing Branch Manager, who talks about the challenges and benefits of centralisation in China.
To what extent are companies centralising their treasury activities relating to China - either within China or as part of a regional treasury centre including China?
China - known in Chinese as the Middle Kingdom - has always considered itself a natural hub for global business activity. Many multinational companies are now trying to enter the market to take advantage of the growth, consumer market size and innovation.
But many people forget how large China is - the land mass is roughly equivalent to Europe. Like Europe, China has one currency, the RMB (Chinese Yuan), - but unlike Europe, which aims to standardise rules and regulations across the European Union, - companies operating in China must deal with many different regulations - local, provincial, and central, and the sometimes varying interpretations of all these regulations. Corporates need to navigate the regulatory environment carefully, thereby making centralisation more complicated; nonetheless, we are seeing an increasing number of companies looking to centralise some or all of their treasury activities in China
An example of a company’s efforts towards centralisation is the use of concentration accounts or entrust loan structures, that allow corporations to pool and lend cash from cash rich entities to cash poor ones, within the same organisation.
Corporates need to navigate the regulatory environment carefully, thereby making centralisation more complicated
Another example would be the centralisation of payment management for RMB, which was made possible through the introduction of CNAPS (China National Advanced Payment System). Some large corporates have established “payment factories” giving them the ability to leverage one banking partner to handle all RMB payments.
USD or foreign currency payment centralisation has also emerged, but a key hurdle to that process is local compliance checks required for supporting documents.
J.P. Morgan provides a wide range of treasury services dedicated to helping customers achieve these goals and better manage their working capital in China.
What specific benefits does treasury centralisation in China offer?
Centralisation of treasury activities in China, like anywhere else in the world, offers companies the ability to achieve higher efficiencies, greater transparency and access to real-time information across a broad geography and many entities. Customers can thereby maximise their use of cash, evaluate risks and their patterns, consolidate bank relationships, and negotiate better use of liquidity surpluses.
What are the specific issues of gaining visibility over cash flow in China? Are there any specific issues relating to payments and collections which treasurers need to be aware of?
As I mentioned earlier, China is a large country and corporates have to rely on their banks to provide information on payments. Very often, the quality of information can be inconsistent. Therefore, working with an institution like J.P. Morgan that has strong information reporting systems is essential.
Also, China is unique in that accounts are segregated based on intended usage of the funds; thus, funds cannot be consolidated into one account. Corporations must maintain multiple accounts, which means dealing with various banks in different locations, thereby restricting visibility across all their banking transactions.
Aggravating the situation is the fact that there is no universal standard for RMB multi-bank reporting. Furthermore, SWIFT does not currently support Chinese language characters.