Redefining Treasury: Voices from Shanghai

Treasurers of multinationals in China face challenges and opportunities distinct from their peers in other parts of Asia.

They must reassess funding options as the differentials between domestic and external costs vary in an environment of global high rates. They are required to adapt to geopolitical and regulatory hurdles. But they also operate in one of the world’s most digitally advanced environments, at the forefront of payments innovation.

High international rates have changed the options for China-based treasurers seeking attractive funding. Amid high US dollar (USD) and euro (EUR) interest rates, many have moved increasingly from intercompany funding towards domestic borrowing options, including lending from local banks.

Among local funding sources, the panda bond market achieved record volume numbers in 2023¹, but foreign companies report challenges with accounting around panda bonds, making it a less attractive option. And, while renminbi (RMB) funding costs are low, it is not viable to deploy this funding for international projects denominated in USD or EUR because of the FX swap costs involved.

Differentials in external borrowing costs are changing: treasurers report the attraction of Japanese yen (JPY). But in all cases liquidity and availability of affordable hedging must also be considered. Given these variables, it is no surprise treasurers in China report financial market volatility as their biggest risk.

“In China, we have four or five funding sources available, and with changing interest rates we shifted from RMB and USD to JPY. As the market changes, we continuously adjust our funding sources.” Treasurer

“Although financing via RMB is ostensibly cheaper than via EUR or USD, financing is not about an absolute number. The funds will be turned into EUR or USD eventually.” Treasurer of multinational

“The main issue for us with panda bonds is their accounting requirements, which do not align with the US GAAP framework. This necessitates either maintaining two sets of financial statements or incurring additional costs to convert.” Treasurer of US company

What are the top risks that your treasury function is concerned about?

Geopolitical tensions around the world impact China-based treasurers of multinationals in a host of ways, from the impact of US and EU tariffs on Chinese products, to the disruption to shipping in the Red Sea.

Trade protectionism affects the skill set treasurers require, including strategic foresight and understanding of complex tax and treasury functions. All of this supports calls for greater on-the-ground responsibility, expressed through regional treasury centres.

“Due to increased tariffs on Chinese exports of electric vehicles and parts to the US, we need to shift quickly to a regional treasury model. We are repositioning each subsidiary’s role in the region as we export to other Asian markets: over 50% of our cash is now concentrated in the Asia Pacific region.” Treasurer

“Many MNCs in China adopting the ‘in China for global’ strategy will be impacted by US and EU tariffs on Chinese products. MNCs need to be agile and flexible to adapt to the new normal, and treasurers are taking on multiple functions.” Treasurer

What are your plans around finance and treasury centralisation?

The need for accurate cashflow forecasting has been exacerbated by high rates and funding costs. Treasurers seek the assistance of technology, but are unclear where to start in achieving it.

APIs create a useful highway toward real-time treasury and better forecasting, but need the data to feed in to them. Documentation headaches stand in the way of real-time information. AI tools have not yet fully embraced cashflow forecasting challenges, but treasurers are hopeful that they will.

“When China needs to feed more cash to support headquarters, the cash left in the China operation is limited. In this sense, cashflow forecast becomes very important.” Treasurer

“We do hope that some AI tools can be developed to address cashflow forecasting. It is always the biggest headache.” Treasurer

“We collaborate with major banks to enhance our forecasting abilities. We use the Kyriba system globally, incorporating machine learning to improve cash flow forecasting based on historical data and future parameters.” Treasurer

Treasurers in China are keen to harness AI, but cite concerns about the security of the data that AI accesses. China’s development of proprietary AI tools is being closely watched by treasurers planning ahead.

Much AI use is in a trial stage and tends toward robotic process automation (RPA) and training. But in an environment where treasurers say 30% of their time is spent on areas beyond their traditional responsibilities, any labour-saving technology is very useful.

“Our company has some concerns over data security after using AI. Once it starts operation, it will visit your data – even the company’s core data.” Treasurer

“Due to data security reasons, we will leave the open source authorisation within our company rather than the third-party supplier.”

“AI integration is in a very nascent stage for us. The adoption is primarily focused on transaction exposure management, mark-to-market and profit-loss calculation.” Treasurer

"RPA is more widely used than AI.” Treasurer

What is your allocation of time between running daily processes vs driving changes in your treasury operations?

Unlike other jurisdictions in Asia, treasurers in China name capital reallocation as their biggest business driver. This fits with a market where handling the currency for liquidity management is getting easier, but still complex. Treasurers say cross-border transfers of RMB are sometimes less restricted by regulation than many other Asian nations, making multinational cash pooling easier, but many cross-border pooling and intercompany lending transactions are pending regulatory approval.

“For cross-border cash pooling, we feel more regulatory restrictions in Indonesia, India, Korea and Thailand than China.” Treasurer

“China is contributing cash to our HQ through cash pooling. The current focus is CNY asset-liability risk management.” Treasurer

“We recently set up two regional notional cash pools in Singapore and the UK. CNY and HKD contributions to the pool help the group get USD financing at lower rates.” Treasurer

“We used to provide much capital support to our Europe headquarters from China. But given the economic slowdown in China, the capital exchange has changed.” Treasurer

What are the top business drivers shaping your treasury priorities in 2024?

Trade protectionism, regulation and geopolitics give treasurers in China a different range of challenges to their peers elsewhere. But the direction is toward greater automation, an easing ability to bring the Chinese currency into regional pools, and considerable possibility for AI and other digital tools.