China Treasury Operations Update

Report date: 
21 Feb 2022

Chairman's commentary

This was a slightly different call on China. Instead of getting into the nuts and bolts of how you make your cross border cash pooling work, the aim was to get feedback on the current business situation, and how participants find the operating environment is evolving in the light of COVID and increasing geopolitical tensions.

Overall, there was no sign of a significant impact coming from trade tensions. Many companies are diversifying their sourcing and manufacturing footprints to increase resilience, but this is due to COVID and usual prudence, as much as political tensions.

COVID has resulted in travel to the country being suspended. This has aggravated the communications challenges which already existed – but the general view is that this is life, and must be accepted and worked on. Several participants said they never expect to be allowed to travel again – so Zoom skills will be essential going forward.

Logistics are a challenge in China, just as they are everywhere else, simply due to the shortage of vessels and vehicles. One correspondent said this is causing delivery deadlines to be missed, which is having a knock-on impact on payment timeliness and customer credit. In turn, this raised the issue of credit insurance, which was proving difficult due to a cultural reluctance in the business to pay for it, and the difficulty of obtaining lines from the global carrier.

There was a lot of discussion about Chinese banks. They are amongst the largest in the world by balance sheet, but have historically been poor at providing some of the more sophisticated services. The feedback was that this is beginning to change, and, in any case, they are becoming more open to lending money to non Chinese companies. Some participants have found that their sales teams had been accepting payment for goods and services by opening their own wallets in AliPay and WeChat. There is a lot of effort going into bringing these wallets into the central structure and ensuring proper internal controls – these wallets do not necessarily allow for the four eyes principle.

The role of domestic banks in cash management was discussed: they are becoming more open to providing MT940s and 942s. One participant was using second tier banks to handle retail receipts, but not leaving cash with them, as they are not strong credits.

Overall, the feeling is that the regulatory environment continues to be bureaucratic and require a lot of documentation, but it works and is becoming slightly less onerous. There is still frustration because you need to have an account with a bank to do a FX transaction with them. A couple of participants have been undergoing lengthy tax audits for royalty and services payments – but these have always been subject to heavy scrutiny. Finally, several participants are struggling with the link between their domestic and international cash pools. The domestic cash pools tend to function using the PBOC rate of interest, which is about 3%, while the international ones use market rates, which are usually lower. This can put the entity which heads the local pool in a loss position – or force the international pool to pay over the market rate, after hedging. This is not stopping anyone from using their cross border pool, but it is not a comfortable position to be in.


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