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Review, Reflect and Refine: Treasury in China The Editor explores some of the recent regulatory reforms from People's Bank of China (PBoC) and State Administration of Foreign Exchange (SAFE) and the various cash and treasury management opportunities that these reforms present.

Review, Reflect and Refine: Treasury in China

by Helen Sanders, Editor

There can be few multinational corporations today for which developing their business in China is not a major priority. Many have now reached a ‘tipping point’ where their business in emerging markets, (a term which somewhat inexplicably still includes China) now represents 50% or more of their business, with China typically the largest growth market. While there may be talk of a slowdown in growth rates in China, growth remains far stronger than many other regions, and its market potential in the longer term is undiminished. From a treasurer’s perspective, few countries create the same challenges as China, not least due to the complexities of a highly regulated market and the number of regulatory announcements, coupled with rapid growth in China that many companies have experienced. This article explores some of the recent regulatory reforms from People’s Bank of China (PBoC) and State Administration of Foreign Exchange (SAFE) and suggests some of the cash and treasury management opportunities that these reforms present. As Kee Joo Wong, HSBC summarises,

“The past one or two years reflect a historic period of financial reform. Most recently, we have seen opportunities emerge for foreign currency cross-border pooling, netting, centralised payment pilots and RMB cross-border lending and trade settlement regulatory simplification schemes being rolled out across China.”

The importance of pilot programmes

Regulators in China continue to take a measured approach to liberalisation, with the concept of pilot programmes as a mechanism to introduce regulatory reforms now well-established. PBoC and SAFE work with a limited number of banks and their customers to test regulatory reforms and assess the impact before expanding the remit of these programmes more widely. Kee Joo Wong, HSBC explains,

“PBOC and SAFE use pilot projects as a means of testing, reviewing and refining liberalisation initiatives in a controlled way. Initially, a limited number of banks and their customers are involved, sometimes starting in a few cities in China e.g., Shanghai and in some cases Beijing. Once the pilot project has been deemed a success, it can then be rolled out more widely, incorporating modifications where necessary.”

The reason for introducing reforms on a limited basis is clear: to assess and contain any potential negative impact and ensure that reforms are rolled out smoothly, with any amendments made at an early stage. It is perhaps more frustrating for companies that are not included in pilot programmes in that they often have to wait many months before new opportunities are available to them. Kee Joo Wong, HSBC, urges treasurers to be proactive in working with their banks to identify the pilot programmes that meet their business needs and seek inclusion,

“For a foreign multinational operating in China, becoming a pilot customer can be very beneficial. Not only does a company have the opportunity to input directly to new regulatory initiatives, but it often prompts a review of cash and FX processes in order to become more efficient.”

Treasury review and refinement

The second point that Kee Joo raises above is particularly important: i.e., that involvement in a pilot programme should prompt a review of cash and treasury processes. He continues,

“In reality, all companies operating in China should be reviewing cash and treasury processes regularly, both to determine how they can leverage new opportunities that are opening up, and to review their operations that may have expanded significantly. In many cases, treasurers and finance managers in China are seeking to implement best practices and technology from other regions to achieve greater consistency and standardisation, even though there may be some ‘tweaks’ to meet local requirements in China. This brings advantages to local operations but also provides greater visibility of cash and risk, and improved predictability over processes such as netting cycles, which in turn assists with cash flow forecasting and funding decisions.”

Changes in scale and scope to a company’s activities in China and evolving regulations that could result in greater operational and financial efficiency should prompt treasurers to review their cash and treasury management policies and processes. Bearing in mind that China remains a highly regulated market, it may seem unrealistic to implement the same approach to cash and treasury management in China as in other regions. According to Kee Joo, the barriers are being lowered, however,

“Treasurers should not be concerned about experimenting with techniques and solutions they have used in other regions in China. Regulations are becoming increasingly progressive, and there is greater flexibility today than in the past, particularly when participating in a pilot programme. While it may not be possible to implement a solution in exactly the same way as in other regions, it is likely that efficiencies can still be achieved.” 

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