What do Chinese companies with aspirations abroad ask for when they approach international banks for services?
Chinese clients going abroad reach out to international banks to advise them on the approach they should be taking in setting up international treasury operations. Their first priority is to have control. This means online access to information providing timely visibility and capacity to use their offshore funds. Their second priority is liquidity and funding to support their working capital needs – either making better use, where possible, of their funds offshore or being able to access funding in these locations.
While we know risk management is a priority for Chinese clients, they do not appear too active in managing currency or interest rate risk. We suspect Chinese corporations are still learning and evaluating their needs, the approaches and tools to manage these risks.
What about development of shared services centres?
Shared service centres (SSCs) were a growth development area for businesses going into China during the last decade. Recently we have seen a few clients, who had established a degree of control and liquidity across multiple countries and regions (such as Africa and the Middle East), reviewing the need for SSCs. This is still in its infancy stage. Nonetheless, we expect this trend to increase as more treasury functions evolve to the next phase of requirements such as efficiency and risk management.
For Chinese clients going abroad, the development of a large-scale centralised treasury model is very new to them. While there is interest in large centralised treasuries, there have been mixed results so far in how much value these treasuries bring to the corporate. Success depends largely on how well the treasury engages the stakeholders in their organisations to centralise their banking activities with the group treasury.
What challenges do international banks face when dealing with the local banking partners of Chinese clients? Do the local banks understand the importance of modern cash management capabilities?
Local banks’ understanding of cash management is improving and their capabilities are advancing, although not to the level of the international banks.
Local banks are often able to fund corporations very competitively in terms of rate and amount. We suspect local banks, unlike the international banks, currently don’t have as strong a focus on the level of their returns relative to their cost of capital.
Can you comment on the competition international banks face versus the large Chinese banks with an expanding overseas business, and other international banks with a significant presence in China?
Chinese banks may have deep pockets to lend but they are not in all the markets where international banks have already deeply established operations and well-funded balance sheets. As a result, some international banks like Standard Chartered are better positioned to win business opportunities and provide funding, cash and treasury management services to Chinese clients going abroad.
The really interesting element is how well some international banks manage the internationalisation of the renminbi, and how their international networks are able to support the renminbi activities of their Chinese clients internationally. This is a clear differentiator amongst banks.
What are the differences in servicing an MNC moving into China and a large Chinese company expanding overseas?
MNCs moving into China only have to deal with one market although the regulatory environment changes constantly. In contrast, the treasurer of a Chinese corporate going abroad has to learn about various banking and tax regulations, market practices and gaps in banks capabilities across many countries. This is a major challenge for the Chinese corporate treasurer.
One point of differentiation has been the expectations of service levels. Historically, Chinese banks have been able to accommodate the needs of Chinese corporations in China with high degrees of customised services. With internationalisation, the degree of customised support is not the same as what Chinese corporations have experienced, or expect.
In contrast, MNCs going into China five or ten years ago had lower expectations on the range of services provided and the service levels. They placed higher importance on trust and relationship. This has changed dramatically over the past five years. While expectations of trust and advice remain high, products, service management and network coverage are all key criteria of MNCs in China today.
Where are some of the preferred locations for expansion and what factors may affect this decision for Chinese companies?
Hong Kong is the leading pilot location for the internationalisation of the renminbi. It is also a natural location for the setting up of an international treasury centre for the Chinese corporations. Other locations depend greatly on the nature of their business and their offshore markets, as well as the location’s capability to manage renminbi activities.
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. We expect Africa, South America, Australia and Europe to be regions where Chinese corporations will expand their businesses.
