BNP Paribas

China Cash Pooling - Approaches & Experiences : Corporate Treasury

Report date: 
8 Jul 2024

This discussion explored the complexities of cash pooling in China, a topic that frequently arises in treasury conversations. While the goal was to clarify the regulatory landscape and operational requirements, the findings reinforced the reality that rules remain open to interpretation and can vary significantly depending on the bank and regulatory body involved.

Peers examined the key distinctions between domestic and cross-border pooling, the regulatory approvals required, and the different approaches banks offer. The discussion also touched on challenges related to tax considerations, currency exposure, and the evolving stance of authorities on approvals and compliance.

Rather than a single, definitive framework, the session highlighted the diversity of experiences and strategies companies use to navigate cash pooling in China. For treasurers managing liquidity across borders, this report provides critical insights into practical considerations, regulatory nuances, and emerging trends. The full version offers further details on bank-specific practices, tax implications, and risk management approaches.

 

Please Login / Register to access the free  commentary - the full report (18 pages) is available to subscribers or  can be purchased separately - enquire here.

 

Topics covered in this report: 
Cash Pooling - cross border, Cash Pooling - domestic, transfer pricing, Bank Relationships, Entrustment loans
Service providers discussed in this report: 
HSBC, JP Morgan, PBOC, SAFE, ICBC, Bank of China, China Construction Bank, Citi, BNP Paribas, Shanghai Pudong Development Bank

Please log in, or create a free account, to read the whole report summary.

Corporate Treasury Approaches to Managing Geopolitical Risk

Report date: 
8 Mar 2024

Commentary

Geopolitical risk, or simply political risk, is a major challenge for treasurers. We had all become used to viewing Iran, North Korea and Myanmar as off limits, and handling issues in Venezuela and Argentina. But the Russian invasion of Ukraine and escalating trade tensions between the US, the EU and China have made the world a more dangerous place.

This call was scheduled at the request of one member, who was looking for ways to measure political risk, or at least get external indicators they can use to convince management to tread carefully. More on that below. But we quickly moved to discussing what to do, once you have identified the risk. After all, if management wants to do business in a risky country, treasury has to make it happen. 

Generally, peers participated in senior level discussions on strategy and objectives, but felt their main contribution was through managing the balance sheet:

  • Cash repatriation: the main way treasurers can reduce immediate risk is by repatriating restricted and trapped cash. This often involves a cost: withholding tax in the case of dividends, or creating accounting losses on currency conversion. Tax departments and CFOs have to be persuaded this is the right thing to do. Several participants regularly circulate the amount of trapped cash by country to the business, and even the board of directors: this helps change attitudes.
  • Change the business model: this is more difficult, but it can involve moving to invoicing in hard currency to reduce FX risk, or moving to selling through remarketers. One participant has moved from a single manufacturing location in China to multiple production sites in different regions. This was partly due to COVID disruptions and supply chain concerns, but it also addresses the potential exposure due to increasing tensions with China. 
  • Change the funding structure: in some markets, participants have moved from funding via intercompany loans from offshore locations to onshore external borrowing. This reduces the net exposure – provided the company is willing to walk away from the local debt in a crisis. In turn, that raises a series of issues – but at least, it gives more options. It is often more expensive.
  • Manage the accounting exposure: some

Please Login or Register to continue reading this commentary

Topics covered in this report: 
Cash Repatriation, Funding, Political Risk
Service providers discussed in this report: 
BNP Paribas, Economist Intelligence Unit, Brown & Brown, Bloomberg

Please log in, or create a free account, to read the whole report summary.

India Corporate Treasury Update

Report date: 
20 Feb 2024

Commentary

Calls on India are always well attended: there is never a shortage of items to discuss. It is already a very large market, and it continues to grow – so all international companies are motivated to manage its many complexities. 

Complexity is something at which India excels: the regulations are many, varied, and never easy to navigate. It can be difficult to know exactly what they are: as often happens, we spent a lot of time trying to establish what is, and what is not, allowed. At the same time, the country has come a long way. Many things which used to be forbidden are now allowed: cash can be brought into and out of the country with relative ease, though not without red tape. The authorities are relatively flexible and business friendly. India is in the vanguard of efforts to move away from cash for retail transactions: this may be mostly for tax reasons, but it reflects the country’s leading position in technology.

At the same time, it remains a very large country, with significant regional variations, including language, climate, culture and religion – so differences will continue to exist. Our conversation covered the following points:

  • The economy continues to perform well, though competition is fierce – and, in some areas, India continues to favour national champions.
  • Operations: most peers had different legal entities in India involved in different activities: manufacturing, R&D, shared service centres, marketing, etc. Intercompany lending within the country, while permitted, can be complicated.
  • Onshore versus centralised treasury: many MNCs have local treasury teams, due to the regulations and complexity. This is beginning to change: several participants are starting to bring India into their centralised structures. 
  • Similarly, most peers are only using international banks in the country, and shutting down relationships with local banks. One participant attributed this in part to a regulatory requirement to link lending activity to transactional business – especially as the foreign banks can now provide complete services.
  • Another peer

Please Log in or Register to continue reading this commentary

Topics covered in this report: 
Bank Relationships, FX, Hedging FX, Payments - cross border, Intercompany loans, Cash Pooling - domestic, Cash Repatriation, Payments - domestic, Funding
Service providers discussed in this report: 
Citi, HSBC, JP Morgan, Bank of America, Standard Chartered, BNP Paribas, Deutsche Bank

Please log in, or create a free account, to read the whole report summary.

Corporate Treasury ESG Practical Approaches

Report date: 
6 Dec 2023

Commentary

What do companies really think about climate change? What are they really doing?

This call on ESG was lively and gave us some valuable insights. I strongly recommend reading the detailed report. 

Two years ago, when we last discussed this, the main takeaways were:

  • Treasurers were interested in green bonds and financing, but very wary of the lack of clear standards
  • Treasury has a role to play, for example in selecting banks with good green credentials – but this needs to be part of an enterprise wide approach, which was often lacking.
  • The “E” part of the equation tends to receive more focus than the “S” and “G”.

This time, the discussion was very different. The reporting issues and the need for standards has received a lot of media attention recently – but our participants have mostly moved on. Interest in these products has waned: one participant said that, if investors consider the company to be green, the bonds will be priced accordingly, while another found it too hard to prove that the proceeds were being used in a green way. Green investments generally presented many issues, including tracking environmental credentials, and the need for unacceptably long tenors.

Instead, a picture emerged where:

  • All the companies represented have a real commitment to improving sustainability
  • Treasurers are finding it easier to collaborate with other functions for reporting, as ESG goals are becoming more central to corporate strategies. Though one participant finds the US focuses more on “S” and “G” than Europe. 
  • From an “E” perspective, European banks were seen as being more proactive than their US counterparts with BNP Paribas, Scandinavian and Dutch banks name checked as thought leaders.
  • Many companies are using VPPAs (Virtual Power Purchase Agreements) to help improve their carbon footprint. This tool, also known in the US as a REC
Please Login or Register to access the rest of this free commentary.
If you haven't previously Logged in but receive commentaries via email, simply use your email address to change your password to Log in.
Topics covered in this report: 
ESG, Green Bonds, Green Investments, Supply Chain Finance, VPPA, PPA
Service providers discussed in this report: 
BNP Paribas, Citi, JP Morgan, Société Générale, ING, Rabobank, Handelsbanken, MUFG, HSBC, Nordea, SEB

Please log in, or create a free account, to read the whole report summary.

Pages