For Western companies venturing into China, choosing the right place for their treasury headquarters is a major challenge and most will eventually narrow potential locations down to two; Shanghai and Singapore.
It is clear that when dealing with multiple countries and multiple currencies in Asia-Pacific, setting up a treasury centre is a necessary step to achieve operational efficiency and improve risk and liquidity management. For the China focused, Shanghai seems the logical choice, however, there are many who ultimately choose to establish a base in Singapore.
Each company operates in a different manner and there are many factors to consider when choosing the right location. The business model of the company can be a deciding factor, whether most operations are in China or elsewhere in Asia-Pacific. The availability of skilled labour, the efficiency of the regulatory environment, access to financial services and overall business costs are just a handful of considerations finance teams have to weigh up.
According to Ellen Jin, assistant vice-president of Asia corporate treasury and liquidity sales at Bank of America Merrill Lynch, Singapore provides a high level of economic and political stability. Moreover, Singapore is home to a highly educated and well trained workforce. “The literacy rate [in Singapore] is consistently high, at about 96%,” said Jin, at the EuroFinance cash, treasury and risk management conference in Shanghai. Other advantages of locating a regional treasury in Singapore include a business-friendly government, a well-developed legal regime for the protection of intellectual property rights and an excellent logistics infrastructure. Jin also points out that Singapore is “one of the least corrupted countries [in Asia-Pacific]” and is one of the safest countries with one of the lowest crime rates in the world.
However, Singapore is not the perfect location with “most weaknesses related to cost” in the form of labour and land. Highly educated and skilled labour comes with a high price tag and is also very limited in supply.
The other location companies may consider is Shanghai, probably one of the fastest growing and most developed cities in China with more than a sixth of the country’s population, contributing to more than a third of economic output. And, according to Jin, it is a rapidly developing business location with an increasing and steady stream of labour availability in the form of a mix of educated returning tertiary students and an influx of workers from inland provinces.
Similarly, Shanghai is not without its faults. Jin highlights bureaucracy and corruption as serious obstacles in conducting a successful business and the inability to enforce intellectual property rights as a significant concern. In addition, the complicated and inconsistent tax system, especially overlaps between local and national taxes, is a crucial weakness in the city’s ability to attract businesses.
And then, of course, there is the hotly debated topic of renminbi convertibility, whereas the Singapore dollar is fully convertible. It is interesting that Jin dubs Singapore a traditional regional treasury hub and Shanghai an emerging regional treasury hub. Perhaps as the renminbi moves closer to convertibility, so too will companies move closer to Shanghai.
