Treasury & FX in China

Report date: 
25 Sep 2019

These were two lively sessions, with many practical issues raised. If you feel you are the only person encountering operational issues in China, I suggest you read the detailed discussion. You will find you are not alone – far from it.

I recommend you read all the comments. But, if you don’t have time, here is a brief summary:

  • Netting and pooling work, both domestic and cross border. But cross border pooling
  • has been halted in the past, so beware. Also, the authorities expect the flows to be in
  • both directions, and the documentation requirements are onerous. This cannot be
  • avoided.
  • Supply chain financing works, with the same challenges as elsewhere (Procurement, supplier’s own banking relationships etc).
  • Customs guarantees exist and work, so payment of customs duties can be deferred. But it often requires a bank branch close to the customs office.
  • The best and surest way of getting cash out of China is dividends. These attract withholding tax, so that has to be factored in as a cost of doing business. Beware of using pooling or intercompany loans as a disguised way of taking cash out long term: this will attract negative attention from the authorities.
  • Hedging can be done onshore or offshore (via NDFs). The pricing is different. Onshore hedging used to be very inflexible – it is less so now. But the cash still has to be delivered, so the constraints are real.
  • Loans have traditionally been fixed rate. They can be negotiated now, but the market practice has not yet fully embraced this – so the negotiations can be tough.
  • The eternal question: is it best to use local or foreign banks? The eternal answer: it depends. Foreign banks are more flexible, but do not have the local presence or funding. They do tend to have English speaking staff – local ones don’t – but they do have the relationships and the branch network. In all cases, it is highly recommended to have trusted local staff who speak English.
  • Balance reporting and electronic banking: these continue to be challenging, especially if you are using a local bank. The systems exist, and can even be very good – but language, implementation and operation are always a challenge.
  • T&E: there are various challenges with cash advances as most Chinese employees do not have credit cards, especially international ones. There are solutions, including China Union Pay and systems such as AliPay and WeChatPay – but they all bring their own challenges.
  • Social media based payment systems such as AliPay, WeChatPay, etc are well developed in China. Increasingly, it is becoming a requirement for businesses to work with and accept them.

In all cases, maintain good relationships with the regulators. A lot is based on trust. 

Bottom line: the depth and the variety of questions show that our participants have substantial operations in China, and they work. But it will continue to be an environment which requires a lot of management time and attention, as rules, processes and systems vary in time and from one place to another, and this complexity is not going to disappear any time soon.


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