Few will question China’s position as an emerging market champion but the companies of the world’s second-largest economy have been slower than their Asian neighbours to venture into new meadows. And as more multinational companies (MNCs) grab a slice of China’s pie, there are not a lot of leftovers available domestically.
“Chinese companies have lagged behind some of their peers in Korea and Japan, but increasingly we find that there is a very strong focus amongst the Chinese companies to grow internationally,” said Sanjeev Chatrath, Citi’s Asia-Pacific managing director and regional head of client sales management of treasury and trade solutions. “The growth story of Chinese companies in their home market is well documented. As increasingly more international companies venture into China, Chinese companies are facing pressure in their domestic markets to the need to go global has become even more important.”
Legacy systems are debatable handicaps for any growing corporation. Implementing the right tools and solutions and their effectiveness in providing the necessary service to warrant their initial cost is sometimes questionable. However, according to Chatrath, one advantage that Chinese companies possess is “they have less baggage of dated technology are compared to their peers” and he attributes this to their ability to be able to “move very rapidly” and the increased awareness and acceptance that leading technologies can bring enhanced efficiency with regards to treasury and cash management.
“Their first priority is to have control,” said Neil Daswani, head of transaction banking for North Asia at Standard Chartered. “MNCs that enter China only have to worry about dealing with rules and regulations of one market. On the other side of the equation, Chinese companies need to learn about various banking and tax regulations, market practices and gaps in banks’ capabilities in the countries they want to move into. “Chinese companies and financial institutions alike have a voracious appetite on how to best prepare themselves by implementing the right infrastructure, the right services and the right people,” said Lisa Robins, head of treasury and security services for China at J.P. Morgan, who will join Deutsche Bank as Asia-Pacific head of global transaction banking in July this year.
But chief executives at Chinese companies may have to readjust their expectation levels regarding service. According to Daswani, the local banks have been able to accommodate varying needs of Chinese companies by customising service. This isn’t necessarily going to be available internationally.
Regional treasury centres
While many mature European and US companies utilise global and regional shared service centres, Chinese companies have been slower than their Western counterparts on this front.
“Many Chinese companies are setting up their own finance companies,” said Chatrath. “The function of these finance companies is essentially the same as the in-house banks that European companies have adopted,” he explained, which is to be the first port of call for any borrowings or surplus in the group.
The focus of Chinese companies lies in the centralisation of treasury functions because “the story is really about growth and hyper-growth” said Chatrath. Looking at how to fund that growth is the priority for treasurers and CFOs because the SSC model only becomes useful when a company develops a more mature business setup and then looks toward driving down costs, further centralising processes and perhaps bringing in more controls.
“During the last year, we have seen significant interest from Chinese corporations in implementing a regional treasury centre model,” said Robins. “Regional treasury centres, along with shared service centres in general, provide a sophisticated and integrated mechanism to facilitate the smooth running of the company’s day-to-day operations.”
But while there is indeed interest in the regional treasury centre model, Daswani reckons that there are mixed results in how much value these treasury centres actually bring to Chinese companies. “Success depends largely on how well the treasury engages the stakeholders in their organisations to centralise their banking activities with the group treasury,” he said. “To date, Chinese corporations in the energy, resources and telecommunications sectors have been more open to going abroad. They have selected Hong Kong, Singapore and Dubai as key international treasury centre locations.”
Lack of an international market knowledge base has forced Chinese companies to poach top talent from other more developed companies in treasury and finance as they expand cross-border and overseas. The strong demand for Chinese imports in the US will always make it a primary destination for expansion but both Robins and Daswani highlighted Africa, Australia and South America as particular regions of interest.
Chinese companies with aspirations abroad understand the importance of cash management and treasury; they are meticulously scouting for better cash and liquidity management solutions. The international banks may not be able to feed their insatiable hunger for capital, which is probably best left for the local banks, but what they do bring to the table is advice and techniques on best practices from experience.
“While many Chinese companies are cash rich, the need for liquidity management is multi-fold. The fundamentals of cash management are the same everywhere. Prudent cash management can be as basic as making sure the right amount of cash is available in the right currency at the right place at the right time,” Chatrath concluded.
This story was first published in the April 2011 issue of FinanceAsia magazine.
